IMF raises 2017 global growth rate to 3.5%, leaves Nigeria’s unchanged

The International Monetary Fund (IMF), on Tuesday, raised global economic growth projection for 2017 to 3.5 per cent from the 3.4 per cent it had forecast in January.

The change, contained in IMF’s Global Financial Report April 2017 released during a media briefing at the ongoing World Bank/IMF Spring Meetings in Washington, however, left Nigeria’s growth rate for 2017 unchanged at 0.8 per cent.

The report also forecast a slide of 0.4 per cent growth for Nigeria in 2018 to 1.5 per cent from the 1.9 per cent it had earlier projected, although global economy is expected to increase its growth rate by 0.01 per cent to hit 3.6 per cent in 2018.

IMF’s Year-on-Year projection for Nigeria for 2017 and 2018 remains unchanged at 0.8 per cent and 1.9 per cent respectively.

According to the report, “After contracting by 1.5 percent in 2016 because of disruptions in the oil sector coupled with foreign exchange, power, and fuel shortages, output in Nigeria is projected to grow by 0.8 per cent in 2017 as a result of a recovery in oil production, continued growth in agriculture, and higher public investment.”

On the global note the report stated, “The economic upswing that we have expected for some time seems to be materialising: indeed, the World Economic Outlook (WEO) raises its projection for 2017 global growth to 3.5 per cent, up from our recently forecast 3.4 percent,” the report stated.

It added, “Stronger activity and expectations of more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs in early 2016. Higher commodity prices have provided some relief to commodity exporters and helped lift global headline inflation and reduce deflationary pressures. Financial markets are buoyant and expect continued policy support in China and fiscal expansion and deregulation in the United States. If confidence and market sentiment remain strong, short-term growth could indeed surprise on the upside.”

It, however, warned that these positive developments should not distract from the likelihood of binding structural impediments to a stronger recovery and a balance of risks that remains tilted to the downside, especially over the medium term.

The IMF further warned that “Structural problems—such as low productivity growth and high income inequality—are likely to persist. Inward-looking policies threaten global economic integration and the cooperative global economic order, which have served the world economy, especially emerging market and developing economies, well.”

According to the global body, “A faster-than-expected pace of interest rate hikes in the United States could tighten financial conditions elsewhere, with potential further U.S. dollar appreciation straining emerging market economies with exchange rate pegs to the dollar or with material balance sheet mismatches.”

It also stated that a reversal in market sentiment and confidence could tighten financial conditions and exacerbate existing vulnerabilities in a number of emerging market economies, including China—which faces the daunting challenge of reducing its reliance on credit growth.”

The report added that “A dilution of financial regulation may lead to stronger near-term growth but may imperil global financial stability and raise the risk of costly financial crises down the road. In addition, the threat of deepening geopolitical tensions persists, especially in the Middle East and North Africa.

“Against this backdrop, economic policies have an important role to play in staving off downside risks and securing the recovery, as stressed in previous WEOs.

“On the domestic front, policies should support demand and balance sheet repair where necessary and feasible; boost productivity through structural reforms, well-targeted infrastructure spending, and other supply-friendly fiscal policy measures; and support those displaced by structural transformations, such as technological change and globalization.

“Credible strategies are needed in many countries to place public debt on a sustainable path. Adjusting to lower commodity revenues and addressing financial vulnerabilities remain key challenges for many emerging market and developing economies.

“The world also needs a renewed multilateral effort to tackle a number of common challenges in an integrated global economy.”

IMF reported that while economic activity over the last one year had been upbeat in advanced economies, it had been a mixed bag in developing countries.

It stated that “Economic activity gained some momentum in the second half of 2016, especially in advanced economies. Growth picked up in the United States as firms grew more confident about future demand, and inventories started contributing positively to growth (after five quarters of drag). Growth also remained solid in the United Kingdom, where spending proved resilient in the aftermath of the June 2016 referendum in favor of leaving the European Union (Brexit).

“Activity surprised on the upside in Japan thanks to strong net exports, as well as in euro area countries, such as Germany and Spain, as a result of strong domestic demand.

“Economic performance across emerging market and developing economies has remained mixed.

Whereas China’s growth remained strong, reflecting continued policy support, activity has slowed in India because of the impact of the currency exchange initiative, as well as in Brazil, which has been mired in a deep recession. Activity remained weak in fuel and nonfuel commodity exporters more generally, while geopolitical factors held back growth in parts of the Middle East and Turkey.”

The report also noted that “the slowdown in China—along with commodity price fluctuations—has been the key driver of economic performance in emerging market and developing economies, especially in commodity exporters.”

It stated further, “The growth profiles of commodity and non-commodity exporters are quite similar until 2011, when a growth downturn begins for commodity exporters against the backdrop of falling non-oil commodity prices. For emerging market and developing economies as a group, the decline in growth between 2011 and 2016 was 2.2 percentage points, with about two-thirds of this decline attributable to weaker growth in commodity exporters the rest being accounted for by slower growth in China and in other emerging market and developing economies.”

According to the report, commodity exporters account for most of the projected pickup in emerging market and developing economy growth in 2017–19, even though their projected growth recovery is relatively modest compared with the striking decline in their growth rates over the past five years.

It added that the pattern was not much different for low-income developing countries.

The report stated that the economic downturn in Nigeria impacted negatively on the economies of low-income countries over a period of five years.

“The lion’s share of the 1.6 percentage point decline in growth between 2011 and 2016 is attributable to the drastic slowdown in Nigeria, an oil exporter that in 2016 accounted for more than 20 percent of purchasing-power-parity GDP of low-income countries and about half of the GDP of commodity exporters in this country group.

The report also stated that there would be broad stability of growth in low-income countries that are not primarily commodity exporters, it, however, excluded Nigeria.

“There will be stability of growth in low-income countries that are not primarily commodity exporters, a group of countries that are not primarily commodity exporters, in which Bangladesh and Vietnam have large weights, as well as the milder slowdown in low-income commodity exporters excluding Nigeria when compared with all commodity exporters,” the report stated.