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Nigeria faces slower economic growth in 2022

todayMarch 24, 2022

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The Economist Intelligence Unit (EIU) said on Wednesday it expects Nigeria’s economic growth to slow more than expected in 2022 as power-supply issues, high inflation and expected monetary tightening hurt output.

From an initial forecast of 3.3 percent in February, the EIU now expects real GDP growth to decelerate to 3 percent in 2022 from 3.6 percent in 2021.

The slowdown “will stem from continued erosion of household purchasing power by inflation, monetary tightening by the CBN and power-supply issues, with low water levels and inadequate gas supply constraining production,” it said in a new report.

Faster growth is, however, expected in 2023 and 2024 on the back of higher real exports and reduced imports, followed by another marked slowdown in 2025 and 2026 as world oil prices slide and fundamentals deteriorate.

The EIU’s projection, though at par with the median estimate of economists polled in a BusinessDay survey earlier this month, is more optimistic than that of the International Monetary Fund and the World Bank, which expect the economy to grow by 2.7 percent and 2.5 percent respectively in 2022.

Nigeria’s economy expanded at the fastest rate in seven years in 2021, thanks to the low base effect from the COVID-1- induced recession the previous year.

However, a shrinking GDP size, relative to 2014, exposes the economy’s struggles and the pain of its 200 million people who are growing poorer and have to contend with the world’s second highest unemployment rate and Africa’s sixth-highest inflation rate.

Read also: 7 economic highlights of First Quarter 2022 (Q1 ’22)

Nigeria’s economic woes have gone from bad to worse this year, with rising diesel prices, lingering petrol scarcity in major parts of the country and worsening power supply.

Diesel prices have more than doubled amid the Russia-Ukraine crisis, raising energy costs for businesses that must generate their own power to make up for the shortfall from an unreliable national grid.

Manufacturers are threatening shutdown, job cuts and price increases as a result of the higher energy costs while several other businesses are bracing for lower profits.

On Monday, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), said available data on key macroeconomic indicators suggested a likely subdued output growth for the economy for most of 2022.

Emefiele said the anticipated slowed growth “is hinged on the dampening impact to growth of rising energy prices in the domestic economy, tightening external financial conditions and the persistence of legacy security and infrastructural problems.”

Although the CBN left interest rates unchanged at its last Monetary Policy Committee meeting this week, four out of 10 members of the committee voted for a hike, as pressure mounts on Nigeria to hike rates in line with rising global interest rates.

The EIU expects the CBN to increase rates by 100 basis points over 2022, taking it to 12.5 percent.

Nigeria’s economic growth is, however, expected to pick up to 3.9 percent in 2023 amid changing economic fortunes.

A mega-refinery, the Dangote Refinery, is expected to come on stream this year and will be ramped up in 2023, further boosting net exports.

Some output will be for regional markets, and from 2023, local production will increasingly replace fuel imports, on which Nigeria depends, as fuel prices are liberalised.

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todayMarch 24, 2022

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