Why IMF projects 5.4% contraction of Nigeria’s GDP in 2020
The International Monetary Fund IMF has said that Nigeria’s Gross Domestic Product GDP would experience a more serious contraction of 5.4 per cent as against the former 3.4 per cent earlier projected in April 2020. This new projection, according to the agency, was influenced by expected more serious economic storms on global value chains occasioned by the effects of the COVID-19 pandemic, which is affecting global demand for goods and services.
The agency however expects Nigeria’s economy to rebound by 2.6 per cent in 2021.
It also expects poorer nations dealing with the disease to have longer economic recoveries as lockdowns continue in the worst-hit to global GDP since the Great Depression.
IMF Chief Economist, Gita Gopinath, said that the agency’s projection for sub-Saharan Africa overall is a negative 3.2 per cent in 2020 with a recovery in 2021 of 3.4per cent
South Africa’s economy, according to the projections is expected to decline by eight per cent in 2020 and a 3.5per cent rebound forecasted for 2021.
IMF also says the higher than expected GDP decline is a sign that poorer economies are being hit harder because, “for many countries that are staring out at lower per capita income levels when you have a growth hit of 3 percentage points, the distress that it causes in people’s lives is in a bigger magnitude than a similar decline for an advanced economy so these are very difficult times.”
“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” IMF said in its revised World Economic Outlook.
The rebound of equity markets globally “appears disconnected from shifts in underlying economic prospects”. The fund expects reduced consumption due to larger than expected disruptions to domestic appetite for goods and services due to social distancing measures for COVID-19.
Gopinath said last month that the global outlooks are worse than previously expected and the fund may downgrade its April forecasts based on data its computing.
Fiscal Monetary Policies seem to have eased in first world nations and emerging economies.
Globally, Central Banks have announced stimulus plans up to $11 trillion, which is $3 trillion higher than April estimates. These plans are expected to soften the effects on the declining economic activity and limited the rising borrowing costs, also emerging markets portfolios have seen a recovery from earlier withdrawals.
The fund says the reduced global Gross Domestic Product GDP could “tip some economies into debt crises and slow activity further”.
The US GDP is set to take an eight per cent hit in 2020, compared to 5.9per cent earlier predicted, 2021 growth forecast is pegged at 4.5per cent. The Euro Area is expected to shrink by 10.2per cent in 2020 and grow six per cent in 2021.
Emerging Markets are expected to shrink by three per cent while advanced economies by eight per cent, compared to 6.1per cent previously predicted.
China will see a little growth as it’s expected to grow by just one per cent. Brazil is expected to shrink 9.1per cent, Mexico by 10.5per cent and India by 4.5per cent.
IMF warns that the reductions in GDP due to COVID-19 will widen inequality, with over 90per cent of emerging market economies expected to have per capita income declines.
Global trade for goods and services will also shrink by 11.9per cent in 2020.
The group expects two possible scenarios, first a possible second virus outbreak next year which will disrupt economic activity to about half the value expected for this year, emerging economies are expected to feel the heat more and global outlook will be 4.9per cent lower than 2021 forecasts.
The other scenario predicts a faster than expected economic rebound with global forecasts three per cent higher than 2021 expectations.