Fitch Solutions, a global provider of credit, debt market as well as country and industry risk research, has said that Nigeria’s inflation rate would hit 25.1 per cent this year, amid spiking poverty.
This is even as it said that the economic reforms embarked upon by the Tinubu government would dim Nigeria’s short-term outlook.
In a report titled: “Key Economic Reforms Dim Nigeria’s Short-Term Economic Growth Outlook”, Fitch projected that the country’s real Gross Domestic Product (GDP) growth would slow to 2.7 per cent in 2023, down from 3.3 per cent in 2022, as rapidly increasing living costs weigh on domestic demand.
It said that economic growth would accelerate modestly to 3.2 per cent in 2024, while domestic demand will remain poor due to high inflation, favourable trade dynamics following the start-up of the Dangote refinery which is expected to support growth.
“We project that real GDP growth in Nigeria will slow to 2.7 per cent in 2023, down from 3.3 per cent in 2022, as rapidly increasing living costs weigh on domestic demand,” it stated.
Fitch added that the assumed uptick in economic activity in Q2, 2023 will not be maintained in H2, 2023 on soaring consumer prices as economic reforms weaken domestic consumption.
“Indeed, the naira has lost 40 per cent of its value against the US dollar since the liberalisation of the exchange rate on June 16.
“These reforms will exert significant upward pressure on consumer prices in H2, 2023, with inflation set to average 25.1 per cent in 2023, the highest annual rate since the 1990s. This will further erode consumers’ purchasing power, clouding the outlook for private consumption,” Fitch stated.
It further pointed out that efforts to alleviate the impact of rising inflation on households would yield limited results and that President Tinubu’s plan to borrow $800 million from the World Bank to scale up the country’s National Social Safety Net Programme, which would likely impact 12 million low-income households that would receive a monthly payment of N8,000 ($10.30) for six months, would have little or no impact.
“However, considering our estimate that the average monthly disposable income per household in Nigeria stands at N143,500, an N8,000 hand-out will only increase household incomes by roughly 6 per cent, well below the inflation rate, which will surpass 25 per cent y-o-y in the coming months.
“Given our expectation that real wages will drop and poverty rates will increase, we expect that private consumption will decline by four per cent in 2023, from a contraction of 3.5 per cent in 2022, shaving off 2.7 percentage points (pp) from headline GDP growth,” the report added.
Fitch said the outlook for fixed investment also remains downbeat, with weak economic conditions resulting in a slowdown in loan uptake in Q4, 2022, implying that domestic investment will weaken.
It stated that net exports will offer some relief to the Nigerian economy in 2023, projecting that crude production in Nigeria will increase by 7.0 per cent this year – following a three-year contraction – as security agreements and wider efforts to reduce theft pay off and increases Nigeria’s export potential.
“Indeed, crude output rose by 3.3 per cent y-o-y in H1, 2023 to an average of 1.3 million barrels per day. While we believe that liquids production will moderate somewhat compared to the H1, 2023 output, the year-on-year growth figure will remain positive due to favourable base effects.
“Given that hydrocarbons account for roughly 90 per cent of Nigeria’s total exports, this will improve the country’s external trade outlook in H2, 2023,” it stated.
Meanwhile, Fitch stated that it expects a substantial contraction in imports as a result of weak domestic consumption, noting that rapidly rising inflation on the back of the fuel subsidy removal and the liberalisation of the exchange rate will reduce demand for imported consumer products and capital items over H2, 2023.
The organisation predicted that economic growth would accelerate modestly to 3.2 per cent in 2024 even as the removal of the fuel subsidy and the devaluation of the exchange rate would keep consumer price growth elevated, particularly in H1, 2024.
“Indeed, we project that inflation will average 23.4 per cent in 2024, continuing to put pressure on purchasing power. However, weak domestic consumption and the start-up of the Dangote refinery will also ensure that import growth will remain in contractionary territory.
“Our oil & gas team expects that production at the new refinery – which was commissioned in May 2023 – will start in Q4, 2023, reducing the need for imported fuel (Nigeria’s largest import product) through 2024.
