IMF reduces growth forecasts for Nigeria, global economy
In its latest ‘World Economic Outlook (WEO) Update’ entitled ‘Growing Pains’ released yesterday, IMF revised downward growth forecasts for the global economy and all other segments of advanced and emerging economies citing continuing old risks and emerging new downside risks.
The IMF reduced earlier growth projections for 2013 and 2014 for Sub-Saharan Africa (SSA), contained in its April 2013 WEO, by 0.4 per cent and 0.2 per cent.
According to the report, growth in sub-Saharan Africa will be weaker, as some of its largest economies including Nigeria and South Africa struggle with domestic problems.
The report noted that at 5.0 per cent in 2013 and about 5.5 per cent in 2014, growth in emerging market and developing economies is now expected to evolve at a more moderate pace, some one-quarter percentage points slower than in the April 2013 WEO.
“Global growth is projected to remain subdued at slightly above 3 per cent in 2013, the same as in 2012. This is less than forecast in the April 2013 World Economic Outlook (WEO), driven to a large extent by appreciably weaker domestic demand and slower growth in several key emerging market economies, as well as a more protracted recession in the euro area,” IMF noted.
It indicated that global growth will recover from slightly above 3.0 per cent in 2013 to 3¾ per cent in 2014, a quarter per cent weaker for both years than the April 2013 projections.
The report stated that downside risks to global growth prospects still remain dominant pointing out that while old risks remain, new risks have emerged including the possibility of a longer growth slowdown in emerging market economies, especially given risks of lower potential growth, slowing credit, and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the United States leads to sustained capital flow reversals.
It noted that stronger global growth will require additional policy action, which will require major advanced economies to maintain a supportive macroeconomic policy mix, combined with credible plans for reaching medium-term debt sustainability and reforms to restore balance sheets and credit channels.
It advised that while many emerging market and developing economies face a trade-off between macroeconomic policies to support weak activity and those to contain capital outflows, macro prudential and structural reforms can help to reduce the stark consequences of this trade-off.
The report underlined the excruciating impact of weak global economy on the emerging market economies with recent increases in advanced economy interest rates and asset price volatility and weaker domestic activity leading to some capital outflows, equity price declines, rising local yields, and currency depreciation. It should be noted that Nigeria’s stock market and Forex exchange had witnessed steep declines in June 2013.
According to IMF, weaker growth prospects and new risks raise new challenges to global growth and employment, and global rebalancing and policymakers everywhere need to increase efforts to ensure robust growth.
It emphasized that key advanced economies should pursue a policy mix that supports near-term growth, anchored by credible plans for medium-term public debt sustainability and allowance for more gradual near-term fiscal adjustment.
“With low inflation and sizable economic slack, monetary policy stimulus should continue until the recovery is well established. Potential adverse side-effects should be contained with regulatory and prudential macroeconomic policies. Clear communication on the eventual exit from monetary stimulus will help reduce volatility in global financial markets. Further progress in financial sector restructuring and reform is needed to recapitalize and restructure bank balance sheets and improve monetary policy transmission,” the IMF stated.
