Nigeria’s economy to grow 2.5% in 2018 on effect of forex reforms, oil production recovery

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    WED, JANUARY 10 2018-theG&BJournal-The World Bank in its January 2018 Global Economic Prospects report, projects that Nigeria’s economy will pick up from 1 percent in 2017 to 2.5 percent in 2018 and 2.8 percent in 2019-20. According the Bank, the forecasts for 2018 and 2019 were revised up, reflecting expectations that oil production will continue to recover and reforms in the foreign exchange market, along with improved supply of electricity, will help lift growth in the non-oil sector.

    A recovery in the oil sector, partly due to a decline in militants’ attacks on oil pipelines, helped bring Nigeria back to positive GDP growth in 2017, buoyed by the solid performance of the agricultural sector.

    The bank warned however that risks to the outlook remain titled to the downside, such as the possibility of disorderly financial market adjustment or rising geopolitical tensions.

    Global growth is also expected to edge up to 3.1% in 2018 while growth across emerging and developing economies is expected to pick up as headwinds ease for commodity exporters.

    In South Africa, Growth is projected to pick up to 1.1 percent in 2018 and 1.7 percent in 2019-20. However, policy uncertainty is likely to remain and could weigh on investment. Growth in Angola is projected to rise from 1.2 percent in 2017 to 1.6 percent in 2018.

    According to the report, growth will remain below the rates seen prior to the global financial crisis despite the pickup, “partly reflecting the struggle faced by the region’s larger economies to boost private investment.”

    “Moreover, while per capita growth is expected to turn positive after falling in 2016 and 2017, this would be at a rate that would remain insufficient to reduce poverty,” the Bank said.

    According to the report, outside the three largest economies, among oil exporters, growth is forecast to strengthen in Ghana, as increased oil and gas production lifts exports. Growth in CEMAC is expected to remain subdued but improve gradually, as countries continue to adjust to low oil prices.

    “The ongoing recovery in metals exporters is projected to continue. Steadily rising metals prices are expected to encourage further investment in the mining sector. In some metals exporters, a combination of slowing inflation and monetary policy easing is expected to support a pickup in household demand. In others, improved weather conditions will also enhance power generation, supporting greater private sector activity.”

    The World Bank in the report noted that risks to the regional outlook are, on balance, tilted to the downside. On the upside, stronger than- expected activity in the United States and Euro Area could push regional growth above the baseline through higher exports, and increased investment flows in mining and infrastructure. On the downside, an abrupt slowdown in China could generate adverse spillovers to the region through lower-than-projected commodity prices, which would exacerbate economic imbalances and complicate adjustment needs in many commodity exporters. Oil producers in CEMAC and metals exporters are particularly vulnerable to this risk.

    On the domestic front, excessive external borrowing, in the absence of sound forward looking budget management, could worsen debt dynamics and cause economic instability. Reforms to contain fiscal deficits and rebuild buffers are particularly needed in CEMAC as well as in the non-resource-intensive countries where government debt is high and rising.

    A quicker and sharper-than-expected tightening of global financing conditions—triggered, for example, by a reassessment in financial markets of the pace of monetary policy normalization in the United States or other major economies—could lead to a reversal in capital flows to the region. South Africa would be particularly vulnerable to adverse swings in investor sentiment because of its great dependence on portfolio inflows. Moreover, with the increase in sovereign bond issuance in recent years, a sharp increase in global interest rates could also complicate debt dynamics in the region. In the long run, a sharper-than-expected slowdown in potential growth could damage prospects for gains in per capita incomes and poverty reduction.

    The Bank said other downside risks include a protracted period of heightened political and policy uncertainty, which could further hurt confidence and deter investment. 4is risk is elevated in South Africa, where the ruling African National Congress’s leadership election could lead to deep divisions within the party, and in Zimbabwe, where a political transition is unfolding. Droughts, conflicts, and worsening security conditions would weigh heavily on economic activity in the region, especially in fragile countries. The risk is particularly elevated in West and Central Africa, where militant insurgencies remain a threat.

    “The risks to the regional outlook underscore the need for policy actions to achieve inclusive growth the rising government debt levels highlight the importance of fiscal adjustment to contain fiscal deficits and maintain financial stability. Structural policies—such as improvements in education and health systems, as well as labour market, governance, and business climate reforms—could help bolster potential growth across the region,” the Bank said.

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