‘Recession, Hyperinflation Likely In 2023’
The Lagos Chamber of Commerce and Industry (LCCI) has said that economic conditions across regional blocs show that a recession or a significant slowdown of growth in 2023 is likely owing to spiralling inflation, high energy cost, monetary policy tightening, and weakening consumer demand.
The President of LCCI, Michael Olawale-Cole, stated this during the chamber’s quarterly state of the economy press conference which held in Lagos on Tuesday.
According to him, given the numerous challenges confronting the Nigerian economy, the chamber’s prediction remains a hard landing, which in economic terms points towards a period of economic downturn.
Olawale-Cole said that with recent projections from the International Monetary Fund that one-third of the world economy would be in recession, Nigeria, though not on the list, might lead to a recession for millions of Nigerians “if we bring into focus the latest multidimensional poverty index.”
He said, “As we enter the year 2023, the global economy, beyond the mounting uncertainties, may continue to face a confluence of challenges. From persistently high inflation and aggressive global monetary policy tightening to the continued disruptions caused by the Russia-Ukraine war and the energy crisis, weak consumer demand, and political upheavals, our projected outlook remains a hard landing.
“With several shocks suffered by many economies over a more significant portion of 2022, various projections and analyses of economic conditions across regional blocs point to the likelihood of a recession or a significant slowdown of growth in 2023 due to spiralling inflation, high energy cost, monetary policy tightening, and weakening consumer demand. Global growth, though positive, slowed down by about 50 per cent between 2019 and 2022.”
Noting that Nigeria’s inflation statistics reached a 17-year high in November at 21.47 per cent, Olawale-Cole said that with the persisting war in Ukraine and high spending by the government on the forthcoming general elections and census, the chamber foresees a further rise in the inflation rate in the short term.”
He stated further, “We reiterate our position on the rising inflation that a rate hike will not tame the increasing inflation without complementary targeted financing of critical sectors like agriculture, power, energy, and defence.
“The government must invest more in boosting supply and cushioning the cost of production. Though the planned removal of fuel subsidies may cause inflation to rise in the short term, it remains the best economic decision to reduce our unsustainable debts. We expect the government to roll out cushioning policies before the possible removal later in the year.”
On the recently signed Appropriation Bill, the LCCI president expressed worry over the budget deficit, which would have to be financed through loans.
He added, “Looking at the huge deficit to be financed by borrowing, can we consider more efficient alternatives to new borrowings? Can we issue equity to finance the deficit instead of using debt? Can we break the path in which the federal government only approaches the debt markets at home and abroad and never approach the equity market at home or abroad? Investors invest both in debt and equity.”
On the recent move by the CBN to redesign the naira and also place a cap on withdrawals for individuals and corporate entities, the LCCI president said that beyond the reasons and economics of currency management, the CBN had to embark on an aggressive push for a truly cashless economy to reduce the attraction to holding cash.
“If this is not done, the currency in circulation will rise again as hoarding of the new notes may occur,” Olawale Cole warned.
He also noted that the government, being the biggest spender, should establish a cashless payment for its procurements.
This, he said, could also be supported by more automation of government activities that require payment for services by the public because with more automation and less human interface, corruptive tendencies will reduce.
As the organised private sector continues to lament difficulty in accessing forex for international business transactions, Olawale-Cole lamented that the naira continued to record unprecedented volatility throughout the year 2022, with a widening premium between the official (Nafex) rate reaching a current rate of N461/USD and the BDC/parallel market rate reaching up to n750/USD.
According to him, the chamber’s position is that monetary authorities need to liberalise the forex market by unifying the multiple forex rates and ensuring forex rates are market-driven. This, according to him, is critical in enhancing stability, liquidity, and transparency in the forex market.
“The unification is expected to improve our currency management framework, given that the multiple exchange rate systems have continued to create uncertainties and sources of arbitrage,” Olawale-Cole said.