In January 2020, the International Monetary Fund (IMF) projected that global growth will improve from 2.9 % in 2019 to 3.3% in 2020.
The IMF in April 2020 has revised its global growth projections downward to –3%.
This implies that the world will enter into a recession this year, with the outlook much lower than it was during the financial recession in 2008.
The IMF estimates that the global economy will bounce back in 2021 with significant 5.8% growth, as business activities return to normal levels aided by supportive policy measures from countries.
Also to note that Nigeria’s economy is highly vulnerable to oil shocks. A sharp decline in oil prices:
- This is due to lowers exports of oil and gas represents over 80% of goods and services exports. Cuts government revenues – about 50% of general government revenues come from oil and gas
- Tightens private sector credit—about 30% of bank credit concentrates in the oil and gas sector and puts pressure on the exchange rate. The nonoil sector also depends on oil sector activity.
Also in the Q2 2020, FDI and FPI inflows declined further in Q2 2020 by 33.4% and 91.1%, respectively from -13.4% and -39.4% in Q1 2020.
This represents a major change to the positive performance recorded in Q4 2019 when FDI and FPI rose by 64.8% and 35.1%, respectively.
By implication, it increases the downside risk to the exchange rate through near-term downward pressure on FX reserves.
Despite that, the federal government expects 4% fiscal deficit to GDP in 2020, the outlook for both oil and non-oil revenue portend a worse outcome.
Consequently, implementation of fiscal policy to expedite economic recovery will be severely constrained.
Reports have it that without the COVID 19 shock (the counterfactual scenario), about 2 million Nigerians were expected to fall into poverty in 2020 as population growth outpaces economic growth.
According to the reports, with COVID 19, the recession is likely to push an additional 5 million Nigerians into poverty in 2020, bringing the total newly poor to 7 million this year.
This implies an increase in the total number of poor people in Nigeria from about 90 million in 2020 to about 96 million in 2022.