Nigeria’s economy, the biggest in Africa, is likely to contract by 1.8 per cent this year, the International Monetary Fund has said.
The Washington-based lender cut its 2016 growth forecast for Nigeria from 2.3 per cent projected in April, according to its World Economic Outlook update released yesterday.
The projection for next year was reduced to 1.1 per cent from 3.5 per cent.
“In Nigeria, economic activity is now projected to contract in 2016, as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation and weak investor confidence,” the IMF said.
The IMF almost halved its 2016 growth forecast for sub-Saharan Africa to 1.6 per cent and cut its 2017 projection to 3.3 per cent from four per cent.
It said the substantial downgrade of the region’s forecast reflected the “challenging macroeconomic conditions in its largest economies, which are adjusting to lower commodity revenues.”
The lender said Africa’s second largest economy, South Africa, would expand by 0.1 per cent this year and one per cent next year.
The IMF stated, “The outlook for other emerging and developing economies remains diverse and broadly unchanged relative to April. That said, gains in the emerging group are matched by losses in low-income economies.
“Indeed, low-income countries saw a large downward revision in 2016, in large part driven by the economic contraction in Nigeria, and also worsened the outlook in South Africa, Angola and Gabon.”
Nigeria’s Gross Domestic Product contracted by 0.36 per cent in the first quarter of the year, and economic experts have predicted the economy will record another negative growth in the second quarter.
The Governor, Central Bank of Nigeria, Mr. Godwin Emefiele, said a recession appeared to be imminent.
The IMF country representative in Nigeria, Gene Leon, had recently said that while the country’s economy should look better in the second half of the year, growth would probably not be sufficient to negate the outcome of the first and second quarters.
The currency restrictions imposed by the CBN last year in an attempt to protect the dwindling external reserves prompted investors to flee and led to dollar shortages, pushing down the naira.
“The forecast of 1.8 per cent probably assumes a downturn in the second half,” a Johannesburg-based Africa analyst at Rand Merchant Bank, Nema Ramkhelawan-Bhana, told Bloomberg on Tuesday.
“I think there will be sustained pressure from the oil economy, and its ripple effects to other sectors of the economy,” Ramkhelawan-Bhana added.
The nation’s inflation rate accelerated to 16.5 per cent in June, the highest in almost 11 years.
The Central Bank of Nigeria, which kept its benchmark rate at 12 per cent in May, will announce its next policy decision on July 26. Six of nine analysts in a Bloomberg survey forecast borrowing costs will stay unchanged.
The IMF also cut its forecasts for global economic growth this year and next as the unexpected United Kingdom vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.