UK Inflation To Hit 10.9%, Economy In Recession Till 2024 – BoE

File photo of Britain’s newly appointed Prime Minister Rishi Sunak gestures as he delivers a speech outside 10 Downing Street in central London, on October 25, 2022. – Rishi Sunak was Tuesday appointed as Britain’s third prime minister this year, after outgoing leader Liz Truss submitted her resignation to King Charles III. (Photo by Daniel LEAL / AFP)

 

The Bank of England on Thursday announced its biggest interest rate hike since 1989 to combat sky-high inflation that it warned was pushing Britain into a recession set to last until mid-2024.

Following a regular meeting, the BoE said it was lifting borrowing costs by 0.75 percentage points to three percent — the highest level since the 2008 global financial crisis — to cool UK inflation that it sees shortly peaking at a four-decade high near 11 percent.

“It is a tough road ahead,” BoE governor Andrew Bailey told a press conference.

“The sharp increase in energy prices caused by Russia’s invasion of Ukraine has made us poorer as a nation. The level of economic activity is likely to be flat and even fall for some time,” he warned.

The latest rate increase mirrors aggressive rate-tightening by central banks worldwide as food prices and energy bills soar.

On Wednesday, the US Federal Reserve sprang a fourth consecutive hike of 0.75 percentage points — and its boss Jerome Powell suggested they would go higher than expected.

The BoE said British inflation would peak at 10.9 percent this year, but with the level so high, analysts said the central bank rate could hit as high as five percent in the coming months.

– ‘Prolonged recession’ –
Minutes of its meeting warned of a “challenging outlook for the UK economy” that was “expected to be in recession for a prolonged period”, dealing a blow to Britain’s troubled government.

The BoE said the economy had shrunk since the third quarter, entering a technical recession that is forecast to last until the first half of 2024.

The pound tumbled two percent against the dollar on expectations of a long-lasting recession.

“A typical textbook trade is out of the window because currencies usually move higher when a central bank increases rates,” noted Naeem Aslam, chief market analyst at Avatrade.

“Tough times are ahead, and we are going to see the economy, markets, and the currency tanking in the coming months.”

London’s FTSE 100 shares index fared better, losing about half-a-percent.

– Cost-of-living crisis –
The BoE rate increase is set to worsen a cost-of-living crisis for millions of Britons as hikes by central banks see retail lenders push up interest rates on their own loans.

“The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty,” said Craig Erlam, analyst at trading platform OANDA.

Repayments on UK mortgages have surged in recent weeks also after the debt-fuelled budget of previous British prime minister Liz Truss spooked markets, forcing her to resign and triggering emergency buying of UK government bonds by the BoE.

Her successor Rishi Sunak has attempted to bring calm to markets by hinting at tax rises in a fresh budget on November 17, even if such a move further harms Britain’s economy.

“I think everyone knows we do face a challenging economic outlook and difficult decisions will need to be made,” Sunak, a former UK finance minister, told parliament on Wednesday.

British annual inflation stands at 10.1 percent, the highest level in 40 years.

As the Covid-19 pandemic began in early 2020, the BoE slashed its key interest rate to a record-low 0.1 percent and also pumped massive sums of new cash into the economy.

The Bank of England started raising rates last December, while Thursday’s hike was the eighth increase in a row.

“Importantly, most of the tightening in policy over the past year was yet to feed through to the real economy,” said the BoE minutes.

AFP

US Unemployment Rate Rises To 3.7% In August

US President Joe Biden announces student loan relief on August 24, 2022 in the Roosevelt Room of the White House in Washington, DC. Biden announced that most US university graduates still trying to pay off student loans will get $10,000 of relief to address a decades-old headache of massive educational debt across the country. (Photo by OLIVIER DOULIERY / AFP)
US President Joe Biden announces student loan relief on August 24, 2022 in the Roosevelt Room of the White House in Washington, DC. Biden announced that most US university graduates still trying to pay off student loans will get $10,000 of relief to address a decades-old headache of massive educational debt across the country. (Photo by OLIVIER DOULIERY / AFP)

American employers slowed the pace of hiring in August after the surprising surge in the prior month and the jobless rate edged up, according to government data Friday, which could offer the central bank some relief that its inflation-fighting efforts are working.

The Federal Reserve is paying close attention to the progression of the hot job market, looking for signs of easing as it tries to cool the economy with steep interest rate hikes to tamp down inflation which has reached a 40-year high.

While the data showed wages continued to rise, the unemployment rate ticked up as more workers joined the labor force, a welcome development that could allow the Fed to opt for a smaller move later this month after two consecutive super-sized rate increases.

Even with the slowing pace, the job gains bring employment above the pre-pandemic level, the Labor Department said in the closely watched monthly report.

The US economy added 315,000 jobs last month, the report said, which was in line with what economists were expecting after 526,000 hires in July.

The unemployment rate moved back up to 3.7 percent, after dipping to 3.5 percent in the prior month, according to the data.

But wages continued to climb in August, as average hourly earnings rose another 10 cents, or 0.3 percent, to $32.36. Over the past 12 months, worker pay has increased by 5.2 percent.

Continued upward pressure is a cause for concern since the Fed fears it could lead to a wage-price spiral and push inflation higher.

Surging prices, exacerbated by high energy prices due to the Russian war in Ukraine, as well as ongoing supply chain struggles and Covid-lockdowns in China, has prompted the Fed to raise the benchmark borrowing rate four times this year, including giant 0.75 percentage point increases in June and July.

However, the latest data “may tip the scale towards a 50-basis point rate hike” at the September 20-21 meeting, said Rubeela Farooqi of High Frequency Economics, although the next report on consumer price inflation also will be a key factor.

Still, she said “these data are not going to change the Fed’s view that policy needs to move to a restrictive stance over coming months.”

In July, there were more than 11 million job openings, or two for every job seeker.

– ‘Some pain’ –

US GDP contracted in the first two quarters of 2022, which is commonly viewed as a sign of a recession, but the robust job market defies that definition.

Companies have faced a labor shortage for months, prompting them to offer higher wages, which is in turn driving up prices. And there are signs firms are “hoarding” workers — holding onto seasonal employees for fear they might not be able to replace them later.

Fed officials have made it clear in repeated statements that they will continue to raise interest rates to cool the economy, even if monthly data show some signs of progress.

Fed Chair Jerome Powell hammered home this point last week at a conference in Jackson Hole, Wyoming, warning of “some pain to households and businesses,” as well as a “softer labor market.”

New data this week from payroll firm ADP showed private firms ratcheted back hiring in the month to 132,000.

“We think that these numbers suggest a shift to a more moderate pace of hiring,” ADP chief economist Nela Richardson said.

Firms of all sizes are trying “to read what has become a complex economic picture.”

But ADP data showed workers who left their jobs to find a new position saw a pay increase of more than 16 percent, compared to 7.6 percent gains for all workers over the past year.

AFP

UK Economy Close To Recession

(FILES) In this file photo taken on April 05, 2021 Britain’s Prime Minister Boris Johnson leaves after giving an update on the coronavirus Covid-19 pandemic during a virtual press conference inside the new Downing Street Briefing Room in central London. -. (Photo by Stefan Rousseau / POOL / AFP)

 

Britain’s economy shrank in the second quarter, official data showed Friday, as the country heads towards recession under a new prime minister.

UK gross domestic product dropped 0.1 percent in the April-June period after a rise of 0.8 percent in the first quarter, the Office for National Statistics said in a statement.

The Bank of England (BoE) expects the economy to enter a year-long recession by the end 2022 as Britons endure a cost-of-living crisis with inflation at its highest level in decades.

“With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter,” said ONS director of economic statistics Darren Morgan.

READ ALSO: Taiwan Holds Military Drill After China Repeats Threats

“Health was the biggest reason the economy contracted as both the (Covid) test and trace and vaccine programmes were wound down, while many retailers also had a tough quarter.”

Morgan said this was “partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of people celebrating the Platinum Jubilee” that marked Queen Elizabeth II’s 70 years on the throne.

The ONS added that the UK economy slumped 0.6 percent in June.

New PM

Following Friday’s data, finance  minister Nadhim Zahawi said he was “determined to work with the Bank of England to get inflation under control and grow the economy”.

But Prime Minister Boris Johnson will not make “major fiscal interventions” before leaving office next month, his spokesman said on Monday amid calls for immediate government action to tackle Britain’s cost-of-living crisis.

Johnson, back at his desk after a five-day belated honeymoon with wife Carrie in Slovenia last week, has been criticised for being absent as the BoE last week warned of recession.

His trip coincided with Zahawi also being away on holiday, as the central bank hiked interest rates by the biggest margin in nearly three decades in a bid to stem surging inflation.

Johnson, who last month announced he would step down on September 6 following a slew of scandals, is set to hand power to either Liz Truss or Rishi Sunak after a summer-long Conservative leadership battle.

Foreign Secretary Truss and Sunak — Zahawi’s predecessor as chancellor of the exchequer — have clashed over how to address the crisis.

Truss plans an emergency budget to lower taxes and to review the independent BoE’s inflation-fighting mandate.

But Sunak said tax cuts financed with more borrowing would force the bank to increase interest rates even more, insisting on the need to maintain fiscal rigour and tame the price pressures first.

AFP

Global Recession May Be Imminent As Inflation Surge, IMF Warns

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

Surging inflation and severe slowdowns in the United States and China prompted the IMF Tuesday to downgrade its outlook for the global economy this year and next, while giving an even starker assessment of what may lie ahead.

“The outlook has darkened significantly since April,” said IMF chief economist Pierre-Olivier Gourinchas. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”

“The world’s three largest economies, the United States, China and the euro area are stalling with important consequences for the global outlook,” he said at a briefing.

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In its latest World Economic Outlook, the International Monetary Fund cut the 2022 global GDP estimate to 3.2 percent, four-tenths of a point lower than the April forecast, and about half the rate seen last year.

Last year’s “tentative recovery” from the pandemic downturn “has been followed by increasingly gloomy developments in 2022 as risks began to materialize,” the report said.

“Several shocks have hit a world economy already weakened by the pandemic,” including the war in Ukraine which has driven up global prices for food and energy, prompting central banks to raise interest rates sharply, the IMF said.

Ongoing Covid-19 lockdowns and a worsening real estate crisis have hindered economic activity in China, while the Federal Reserve’s aggressive interest rate hikes are slowing US growth sharply.

But the bad news may not stop there, IMF warned, saying that “risks to the outlook are overwhelmingly tilted to the downside,” and if they materialize could push the global economy into one of the worst slumps in the past half-century.

Key among concerns is the fallout from the Ukraine war including the potential for Russia to cut off natural gas supplies to Europe, as well as a further spike in prices and the specter of famines due to the war’s chokehold on grain supplies.

In an ominous warning, the WEO said “such shocks could, if sufficiently severe, cause a combination of recession accompanied by high and rising inflation (‘stagflation’).”

That would slam the brakes on growth, slowing it to 2.0 percent in 2023. The global growth rate has only been slower five times since 1970, the report said.

Gourinchas said that would be “getting really close to a global recession.”

Inflation priority

The top priority for policymakers is to rein in soaring prices, even if it means pain for their citizens, the fund said, since the damage caused by out-of-control inflation would be much worse.

Gourinchas, in a blog post about the report, noted that the “synchronized” moves by major central banks to deal with the inflation threat “is historically unprecedented, and its effects are expected to bite.”

“Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship,” he said.

The IMF now sees consumer prices jumping 8.3 percent this year, nearly a full point higher than previously forecast, while emerging market economies face a 9.5 percent increase in consumer prices.

But, “further supply-related shocks to food and energy prices from the war in Ukraine could sharply increase headline inflation.”

That would increase the pain for poor nations least able to withstand the shock, where food makes up a larger share of family budgets.

US, China slowdown

While the global economy did a bit better than expected in the first three months of the year, it appears to have “shrunk in the second quarter — the first contraction since 2020,” the IMF said.

The IMF downgraded growth forecasts for most countries, including big revisions for the United States and China, cutting more than a point off the prior forecasts.

The fund now sees US growth this year of just 2.3 percent, amid slowing consumer spending and rising interest rates, and the report said a recession — defined by two quarters of negative growth — may already have begun.

Gourinchas said the US has a “very narrow path” to avoid a downturn, and even a “small shock” could tip the economy into recession.

China’s economy is expected to slow dramatically in 2022, expanding just 3.3 percent — the lowest in more than four decades with the exception of the 2020 pandemic crisis — due to continuing Covid concerns and a “worsening” property crisis, the report said.

“The slowdown in China has global consequences: lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners,” the report said.

There were some exceptions to the gloomy outlook, including upgrades for Italy, Brazil and Mexico, as well as for Russia which is still expected to contract but is benefiting from rising oil prices due to Western sanctions, the WEO said.

US Recession Not Inevitable – Biden 

US President Joe Biden adjusts his mask as he attends the Indo-Pacific Economic Framework for Prosperity at the Izumi Garden Gallery in Tokyo on May 23, 2022. SAUL LOEB / AFP

 

A recession in the United States is not inevitable, President Joe Biden said Monday, while acknowledging the economic pain experienced by Americans as inflation soars.

Speaking in Tokyo, Biden replied “no” when asked if a US recession is inevitable.

“This is going to be a haul, this is going to take some time,” Biden said.

The US economy has recovered strongly from its Covid-19 era shutdown, but the highest inflation in four decades and persistent problems in getting international supply chains flowing again are driving pessimism — and Biden’s sinking poll numbers.

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Biden blamed inflation on fallout from Russia’s invasion of Ukraine and other global problems and he defended US economic performance.

“We have problems the rest of the world has but less consequential,” he said.

While acknowledging the high fuel prices and food supply crunches caused by the war in wheat-producing Ukraine, Biden said his administration would continue to “grow our economy, create jobs”.

Last week Treasury Secretary Janet Yellen said “I really don’t expect the United States to fall into a recession”.

However, she cautioned that European countries, which are among the biggest US trading partners, “are more vulnerable” due to reliance on Russian energy imports.

AFP

Mexico Economy Grew 5% In 2021, But Ended In Recession

File photo of Mexico.

 

Mexico’s economy grew by five percent in 2021, but Latin America’s second biggest economy headed into technical recession at the end of the year after contracting for a second-straight quarter, preliminary official data showed Monday.

Economic activity slowed by 0.4 and 0.1 percent in the last two quarters of 2021, compared to the previous three-month periods, according to the data from national statistics institute INEGI.

Analysts Capital Economics said in a statement to clients that the fourth quarter data “confirmed that the economy slipped into a recession over the second half of 2021, and we think growth this year will be weaker than most expect.”

Central bank analysts expect the economy to grow 2.7 percent in 2022.

The Mexican economy had shrunk by 8.4 percent in 2020 as the coronavirus pandemic caused mass shutdowns — with 4.9 million Covid-19 cases and more than 300,000 deaths in the nation of 129 million.

INEGI said industrial activity, which represents close to a third of GDP, grew by 6.8 percent last year.

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Services, worth 60 percent of GDP, rose by 4.2 percent while so-called primary activities — such as farming, fisheries and natural resources extraction — grew just 2.7 percent.

Rather than direct aid to businesses, the government of President Andres Manuel Lopez Obrador has concentrated its pandemic recovery efforts on social programs and investment in public works, such as the new airport in Mexico City and an oil refinery in the southeast.

Brazil’s Economy Goes Into Recession

(FILES) File photo taken on March 06, 2021 of closed stores and empty streets after non-essential services were shut down at midnight and until March 20 in the state of Sao Paulo, amid the novel coronavirus COVID-19 pandemic, in Sao Paulo, Brazil. (Photo by Miguel SCHINCARIOL / AFP)

 

Brazil’s economy, the largest in Latin America, slid into recession in the third quarter of the year as agricultural production dropped, the government said Thursday.

GDP declined 0.1 percent for the second straight quarterly fall, the government statistics agency IBGE said.

The drop in the second quarter was revised to a larger 0.4 percent from the initial estimate of 0.1 percent compared to the previous three months.

In comparison to the third quarter of 2020, the economy grew four percent, the agency said.

Farm production fell 8.0 percent in the third quarter, while manufacturing was flat and the services sector grew 1.1 percent, the agency said.

Brazil’s GDP slowdown in the second quarter ended the recovery it had started in late 2020 after the collapse it suffered due to the Covid-19 pandemic.

Nigeria Exited Recession ‘Faster Than Expected’ – World Bank

A file photo of a resident at a market in Akure, Ondo State. Photo: Sodiq Adelakun
A file photo of a resident at a market in Akure, Ondo State. Photo: Sodiq Adelakun

 

The World Bank has said that Nigeria moved out of recession faster than its forecasts had predicted.

“Following a 6.1 percent year-on-year contraction in 2020 Q2, Nigeria’s economy
contracted by 3.6 percent in 2020 Q3, and expanded by 0.1 percent in 2020 Q4,
moving out of recession faster than expected,” the bank said in its Africa’s Pulse, a biannual analysis of the near-term macroeconomic outlook for the region published in April.

“For the year, Nigeria’s real GDP is estimated to have contracted by 1.8 percent, a stronger outturn than projected in the October 2020 forecast.”

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Meanwhile, the bank said it expects Nigeria’s economy to grow by 1.4 percent in 2021 as the country continues to recover.

“Nigeria, South Africa, and Angola, the region’s three largest economies,
are expected to return to growth in 2021, partly owing to higher commodity prices, but the recovery will remain sluggish,” the bank

The bank added that Nigeria’s economic growth is expected to be slower than other countries in West Africa due to inflation, high unemployment and COVID-19.

The country’s growth will be “driven by telecommunications services, trade due to the gradual opening of borders, agriculture due to an additional influx of labor, and construction, in a context of higher oil prices and fewer mobility restrictions,” it said.

“However, consumer spending and business investment are likely to remain subdued in 2021 as double-digit inflation, high unemployment, and the slow rollout of the COVID-19 vaccine weigh on households’ real income and business confidence.

“Limited fiscal space will also constrain the recovery. Growth is projected to pick up to 2.1 percent in 2022 as rising oil output bolsters exports, and the rollout of the COVID-19 vaccine gathers pace, helping to boost private consumption and fixed investment.

“Progress on the liberalization of the exchange rate regime could boost private sector activity and support stronger economic growth.”

Friday Update: Kagara Abduction, Nigeria Exits Recession And A Historic Landing On Mars

Good morning.

We are leading with the latest updates from the Kagara school attack, Nigeria’s exit from recession, and a historic landing on Mars.


Government Science Secondary School, Kagara, in Niger State was attacked by gunmen on February 17, 2021.
Government Science Secondary School, Kagara, in Niger State was attacked by gunmen on February 17, 2021.

Hunt For Kagara Abductees Continues

At least 41 persons, many of them students, were kidnapped on Wednesday morning after gunmen attacked Government Science College, Kankara, in Niger State. The State Government published the names of the abductees on Thursday.

The police said it had deployed additional tactical, intelligence, and investigative assets to solve the kidnapping and other related cases in the state.

Meanwhile, just 24 hours after the Kagara attack, gunmen attacked some other Niger communities, killing at least one person. Many others sustained injuries.

Shehu Sani: The former lawmaker urged the government to negotiate with the abductors as they have nothing to lose and will not hesitate to harm the abductees.

Quote: “Kidnappings or abductions and violence has been a daily issue,” Mr. Shehu said. “You can use whatever you want to use, be it helicopter or operation Puff Adder or whatever operation you want to use against the bandits, but I think in the interest of the safety and for the lives of these boys, hold on with your bravado, with your helicopter and planes until these boys are safely negotiated out of danger.”

Abubakar Bello: The Niger State Governor, after meeting with the President in Abuja, said the lasting solution to the state’s insecurity challenge is to engage the bandits peacefully. “I understand some of these bandits are tired and need to be looked after; we need to train them, to engage them,” he said.

Tukur Buratai: The ex-Chief of Army Staff told the Senate Committee on Foreign Affairs it may take Nigeria at least 20 years before it can resolve its security challenges. Former Chief of Defence Staff, Abayomi Olonisakin also told the lawmakers Nigeria’s next warfare and crisis will be in the forests. The ex-Service chiefs are being grilled by the Senate before their confirmation as ambassadors.

Ike Ekweremadu: The former Deputy Senate President is insisting on the creation of State Police as the solution to insecurity across the country.


A file photo of a resident at a market in Akure, Ondo State. Photo: Sodiq Adelakun
A file photo of a resident at a market in Akure, Ondo State. Photo: Sodiq Adelakun

Nigeria Exits Recession

The National Bureau of Statistics on Thursday announced that Nigeria has emerged from recession.

The country had slipped into recession under the weight of the coronavirus pandemic and falling oil prices last year.

Although the Finance Minister, Zainab Ahmed, had predicted a recovery in the first quarter of 2021, NBS data showed that the economy grew by 0.11 percent in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters.

Analysis: Economist Bismark Rewane said he was pleasantly surprised by the news. He attributed the recovery to government policy, support from the World Bank and IMF and, of course, a rebound in oil prices.


A health worker prepares an injection of the AstraZeneca/Oxford Covid-19 vaccine on February 7, 2021 at the Mignot Hospital in Le Chesnay near Paris. ALAIN JOCARD / AFP

NAFDAC Approves AstraZeneca Vaccine

The National Agency for Food and Drug Administration and Control (NAFDAC) has approved the use of the Oxford/AstraZeneca COVID-19 vaccine in Nigeria.

The vaccine, which can be stored at 2 to 8-degree centigrade, is the first to be approved by the agency.

According to the Director-General of NAFDAC, Dr. Mojisola Adeyeye, three additional vaccines are being evaluated for approval.

Although the AstraZeneca vaccine appears not to work against the South Africa variant of the virus, it is effective against the UK variant, which has been found in Nigeria.

NCDC: The disease control agency reported 869 new cases of the virus and eight deaths on Thursday. The country’s total caseload is now just a few hundreds from hitting the 150,000-milestone.


What else is happening?

Leah Sharibu: Thursday made it three years since the Dapchi schoolgirl was kidnapped, along with 109 others. While most of the girls have been released, Sharibu wasn’t after she refused to renounce her Christian faith. Many in her community still believe she will return someday.

Apapa: The Lagos State Government has asked articulated truck owners to vacate the port city.

IPOB: The Nigerian Army has commenced an operation against what it describes as “illegal training camps” in Orsu Local Government Area of Imo State and neighboring communities.

Benue: The State Government has shut down a popular private school, Vaatia College in Makurdi, following the outbreak of Guillain-Barre, a rare illness that left nine students paralysed.

Junaid Mohammed: The Second Republic lawmaker is reportedly dead after a brief illness. He was 71.

Edo: The State Government said it will not cede any part of its land for cattle grazing. “Our position on the matter of grazing land is clear and has not shifted, which is that there is no free land for grazing in Edo State,” a statement said.

NASA: The American space agency has successfully landed its Perseverance rover on the surface of Mars. The robot will now embark on a multi-year mission to look for signs of life on the red planet. “The question of whether there’s life beyond Earth is one of the most fundamental and essential questions we can ask,” said NASA geologist Katie Stack Morgan.


That’s it for today and the week. See you on Monday.

COVID-19 Takes Its Toll On African Economy

An undertaker from the AVBOB funeral house in Soweto, carries into a cold storage room the remains of a COVID-19 coronavirus patient on July 21, 2020. MARCO LONGARI / AFP

 

Africa has so far been spared the worst of the coronavirus pandemic in terms of cases and deaths but its economy has not been so lucky, especially the poorer, smaller countries dependent on a single resource or sector.

The spread of the disease has also picked up speed in recent weeks, stoking concerns that worse is to come.

Here are some key features of the pandemic’s economic impact on Africa:

– Historic recession –

For 2020, the International Monetary Fund (IMF) estimates that the economy of sub-Saharan Africa will shrink 3.0 percent, “the worst outcome on record”. However, it should then grow 3.1 percent next year — although this is a much slower pace than elsewhere in the world.

In terms of per capita income, it has fallen 5.3 percent and back to 2013 levels in the space of just a few months.

Abebe Aemro Selassie, the head of the IMF’s African division, highlighted the fact that unlike in the 2008-09 global financial crisis, sub-Saharan countries were in a much worse budgetary position, with fewer resources available to face the crisis than their wealthier peers.

– Different countries, different impact –

African countries can be classified as three economic types:

— Diversified, such as in West Africa, with Ivory Coast, Senegal and Ghana. In the east, Kenya, Uganda and Tanzania.

In these economies, activity has slowed significantly but they are still managing to grow, the IMF says.

— Oil producers such as Algeria, Angola and Nigeria. They have suffered very badly from the plunge in crude prices, especially in the early months of the crisis.

READ ALSO: COVID-19: Five Things To Know About Landmark UK Vaccine

Since then, prices have firmed slowly to arrive back at around $50 per barrel.

— Tourism-dependent countries such as Morocco, Tunisia and the Seychelles. The pandemic has brought travel to a virtual standstill, grounding airlines, which are struggling to survive.

“The crisis has confirmed the differences between diversified countries and the exporters of industrial raw materials but has also impacted North African countries which were in a growth rebound thanks to tourism since 2016,” noted Clement Gillet, economist with Societe Generale.

Standing on its own, South Africa, the continent’s second-biggest economy, has been hit the worst given that it was already in recession before the crisis hit.

Its economy is expected to shrink 8.0 percent this year.

– Raising funds –

Again, the picture is mixed when it comes to how different countries manage debt and raise fresh funds.

On the one hand, there is Zambia, which is heavily dependent on mining and became the first country to default on its debt last month, while Ivory Coast only two weeks later easily raised funds on the market.

Since then, “the financial markets have found their appetite for risk again, and especially for African debt, but investors are going to be much more careful about the details” and quality of the issuers, said Gillet.

Another important source of funds for African countries is remittances from their foreign workers and inevitably this has also suffered in the pandemic.

According to the World Bank, such remittances are expected to fall 14 percent to about $470 billion going into 2021.

“The impact of Covid-19 is pervasive when viewed through a migration lens as it affects migrants and their families who rely on remittances,” said Mamta Murthi, Vice President for Human Development and Chair of the Migration Steering Group at the World Bank.

– Debt –

G20 countries have already put in place a moratorium on interest payments for some 47 countries, most of them in Africa.

The G20 has also said its members are ready to re-negotiate some of the debt itself but such moves have limits.

“Firstly, about 40 percent of African debt is accounted for by the private sector,” and not by governments, noted Kako Nubukpo, an economist and a former minister of Togo.

“Certain countries, such as Benin, with a lot of private sector debt, oppose the moratorium because they fear that when they return to the market to raise fresh funds their risk premium will explode,” he said.

But Senegal on the other hand has welcomed the debt service moratorium, he added.

At the same time, Gillet noted the profile of Africa’s creditors has changed, “which makes any restructuring agreement very complicated”.

“Up until the end of the 1990s, you could get all the creditors around a table,” he said.

“But now you have the debt owed to China, which is not part of the Paris Club (of state creditors), then the debt owed to the private-sector lenders (the London Club of bankers), and then above all the debt raised on the markets.”

Recession: Ortom Reads Riot Act To LG Chairmen Over Financial Impropriety

A file photo of Benue State Governor, Samuel Ortom

 

The Governor of Benue State, Samuel Ortom, has charged the 23 elected local government chairmen on transparent utilization of funds in order to improve on their Internally Generated Revenue to cope with the challenges brought by the economic recession.

Governor Ortom gave the charge on at a two-day management training on technical and administrative competence in the state.

He urged them to live above board, noting that a single act of financial indiscretion could lead to difficult times for the people whose safety and welfare is top priority.

Read Also: Again, Nigeria’s Economy Slips Into Recession

The governor also advised the administrators of the third tier of government to look inward in the face of the recession as looking up to the state and federal government, which have their own challenges, would amount to a waste of time, if they do not add value themselves.

Nigeria’s Economy May Emerge From Recession In 2021 Q1, Says Emefiele

File photo of CBN Governor, Godwin Emefiele

 

The Central Bank of Nigeria (CBN) has predicted that the nation’s economy may emerge from recession in the first quarter of 2021.

CBN Governor, Godwin Emefiele, who made the prediction on Friday during the 55th annual Bankers Dinner which held in Lagos, noted that the expected economic growth was two per cent.

“With the sustained implementation of our intervention measures, we do expect that the Nigerian economy could emerge from the recession by the first quarter of 2021,” he said.

“We also expect that growth in 2021 would attain 2.0 per cent. However, downside risks remain, as restoration of full economic activities, particularly in service-related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world.

“Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.”

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The CBN governor also called for measures to “insulate our economy from the impact of these shocks through our diversification efforts, while also working to ensure that we adhere to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities.

“Our actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 & 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices.”

Emefiele’s remarks come six days after Nigeria’s economy slipped into another recession, the second of its kind in a space of four years.

According to a new report released by the Nigeria Bureau of Statistics on November 21, the economy shrank again in the third quarter of this year.

The nation’s economy maintained a second consecutive negative growth after contracting by 3.62 per cent in the third quarter.

The cumulative Gross Domestic Product (GDP) for the first nine months of 2020, therefore, stood at -2.48 per cent just as it recorded a -6.10 per cent in the second quarter.

SEE FULL STATEMENT HERE:

Gov. Godwin Emefiele, CON

Address at the 55th Annual Bankers Dinner

Lagos, Nigeria

27 November 2020

_______________________________

(Protocols)

It is indeed a pleasure to once again address the banking community at the 55th Annual Bankers Dinner, being organized by the Chartered Institute of Bankers of Nigeria (CIBN). Since I assumed office as the Governor of the Central Bank of Nigeria in June 2014, I have attended 6 consecutive annual dinners by the CIBN. These dinners provide a significant opportunity for me to engage with stakeholders in the banking and finance community on events that are shaping our economy, and the policy measures being embarked upon by the Central Bank of Nigeria to support greater economic growth and continued stability of our financial system.

Let me at this juncture, specially thank the leadership of the Chartered Institute of Bankers of Nigeria led by its President, Mr. Bayo Olugbemi. I appreciate Mr. Seye Awojobi and his team, for their efforts in putting this event together. I want to also extend my gratitude to the Managing Directors/Chief Executive Officers of our banks and other financial institutions who have found time to attend the conference despite their very busy schedules.

Likewise, I welcome my colleagues from the CBN, especially the Deputy Governors, and other senior management of the Bank who are present. And to everyone at this event whether in person or virtually, I would like to thank you for attending.

This dinner comes at a challenging time for our nation, taking into account the impact of COVID-19 on the global economy. In Nigeria, we had to address the public health challenge, in addition to implementing a variety of policy measures aimed at reversing the unprecedented downturn in economic activities during the first half of the year. The emerging reports on progress in developing a vaccine by several firms is indeed reassuring, as it indicates that a solution to the health challenge is in sight. It will also help to support growth in the medium term, by aiding full restoration of economic activities particularly in service related sectors such as education, aviation, hospitality and tourism.

In my remarks today, I hope to provide an assessment of the measures taken by the Central Bank of Nigeria in addressing the impact of the COVID-19 pandemic on the Nigerian economy, as well as our outlook on the path ahead.

Pre-COVID-19 Economy

As we are all aware, prior to the onset of the virus in December 2019, the Nigerian economy was on a positive growth trajectory, having made a significant recovery from the 2016-2017 recession, which was triggered by the drop-in commodity prices in 2016. Following the recession, we witnessed 12 consecutive quarters of economic expansion, and GDP growth in the fourth quarter of 2019 stood at 2.55 percent. Our exchange rate remained stable for over two years at N360/$ and our external reserve witnessed significant accretions from the sale of crude oil and continued inflows from foreign investors.

Our banking system remained strong, as key indicators reflected improvements across several areas. Capital adequacy ratio for the banking industry was above 15 percent, surpassing the prudential requirement. The ratio of non-performing loans declined from 11 percent in April 2019 to less than 6.1 percent by January 2020. Our intervention efforts in the agriculture and manufacturing sectors continued to support employment generating activities and improved local production of goods that can be produced in Nigeria.

COVID 19

The onset of the COVID-19 pandemic in the first half of 2020, and the lockdown measures put in place to contain the spread of the virus, caused an unprecedented shock to the global economy. Global economic downturn, which was particularly significant in the second quarter of the year, saw declines in growth in advanced and emerging market countries, such as the  United States (-9.5 percent), United Kingdom (-20 percent), India (-24 percent) and South Africa (-17 percent). As a result, far-reaching measures were taken by fiscal and monetary authorities in advanced and emerging markets to stabilize their respective economies.

Like other economies, the Nigerian economy was not immune from the COVID-19 shock in 2020. Nigeria’s gross domestic product (GDP) contracted by -3.4 percent in the third quarter, a welcome improvement from the – 6.1 percent recorded in the second quarter.

The negative rate of growth was due to a series of external factors in addition to the lockdown measures, imposed in order to curtail the spread of the virus. Some of the key constricting factors were: Crude Oil Restriction on global travel by land and air; along with the slowdown in commercial activities, led to a significant reduction in the demand for crude oil, which contributed to a 65 percent decline in crude oil prices between January and May 2020. The drop in crude prices, along with OPEC reduction of Nigeria’s production quota led to a significant decline in our foreign exchange earnings, along with a more than 60 percent decline in revenues due to the federation account.

Today, crude oil prices have recovered from its low of US$19 per barrel in April 2020 to US$45 per barrel in November 2020; but it is yet to return to pre-pandemic levels of over US$60 per barrel as at January 2020. GDP growth in the oil sector in the third quarter remained subdued due to the OPEC restrictions on oil output.

Restrictions on Movement GDP growth particularly in the manufacturing sector was significantly impacted by the restrictions on movement as many factories and businesses operated at limited capacity, in addition to a decline in demand for service-related activities, which require extensive in person contact, such as transportation, hospitality and tourism.

Global Supply Chains

Significant disruptions in domestic and global supply chains as a result of lockdown measures in key markets in Asia and Europe between March and May 2020, affected delivery of inputs and machinery to firms in Nigeria and this contributed to a slowdown in manufacturing activities. Some countries such as India and Vietnam imposed restrictions on the exports of vital materials in order to meet the needs of their local market. This challenge reinforces the need to build more resilient systems that can support our production needs in times of crisis.

Capital Flows

The impact of the pandemic and the resulting slowdown in economic activity, led to a significant outflow of funds from emerging market economies. Foreign investors withdrew over $100bn worth of funds from emerging markets between February and April 2020. These funds were  subsequently invested in safe haven assets such as US treasury bills and the Japanese Yen. The increase in outflows from emerging markets also led to a corresponding depreciation in the currencies of several emerging market countries such as Brazil (- 27.3%), Turkey(-35.1%), Argentina(-35%), Russia(-20%), Angola(-27%) and South Africa(-9%) year to date.

Exchange Rate

Like other emerging market countries andcountries reliant on oil exports, the decline in crude oil earnings as well as the retreat by foreign portfolio investors significantly affected the supply of foreign exchange into Nigeria. In order to adjust for the decrease in supply of foreign exchange, the naira depreciated from N305/$ to N360/$ and subsequently to N380/$. With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves.

Due to the unprecedented nature of the shock, we continued to favour a gradual liberalization of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables. This we believe is in line with international best practices in countries where managed float arrangements are in operation. At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange.

These measures have helped to prevent a significant decline in our reserves. Our external reserves currently stand above $35 billion and are sufficient to cover 7 months of import of goods and services. Inflation Inflationary pressure persisted during the year due to several factors. In addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in VAT rate, petroleum prices, electricity price adjustments, farmer-herder clashes, exchange rate adjustment, and flooding that occurred in many parts of our farm belt areas. Inflation in October 2020 stood at  14.2 percent. We however expect inflation to begin to moderate by the first half of 2021 as efforts are being made to enable significant cultivation and production of key staple items in the dry season.

Response by the Monetary and Fiscal Authorities

Given the impact on COVID-19 on key economic variables earlier mentioned, the fiscal and monetary authorities took unprecedented measures to prevent any long-term damage to the growth prospects of our economy. Our first objective was to restore stability to the economy by providing assistance to households and businesses that had been severely affected by the pandemic. In addition, we sought to stimulate economy activity through targeted interventions in critical sectors such as agriculture, manufacturing, electricity and construction. Cumulatively our intervention efforts represent about 3.5 percent of Nigeria’s GDP. Some of these measures we took include:

  1. A cumulative reduction of the monetary policy rate from 13.5 to 11.5 percent between May and September 2020 in order to spur lending to the economy.
  2. A 1-year extension of the moratorium on principal repayments for CBN intervention facilities;

iii. Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic

  1. Reduction of the interest rate on CBN intervention loans from 9 to 5 percent
  2. Strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Total gross credit rose by over 21 percent over the past year, from N15.5 trillion to N19.54 trillion. In addition, over N738 billion has been provided as credit to manufacturing related activities by the banks.
  3. Creation of N150 billion Targeted Credit Facility (TCF) for affected households and small and medium enterprises through the NIRSAL Microfinance Bank. Already, N149.21 billion has been disbursed to 316,869 beneficiaries. Given the resounding success of this program and its positive impact on output growth, we have decided to double this fund to about N300 billion, so as to accommodate many more beneficiaries and boost consumer expenditure which should positively impact output growth.

vii. The Bank also disbursed AgriBusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS) (N92.90 billion to 24,702 beneficiaries), Anchor Borrowers Program (ABP) by the sum of N164.91 billion to 954,279 beneficiaries.

viii. Mobilization of key stakeholders in the Nigerian economy through the Coalition against COVID19(CACOVID), which led to the provision of over N28bn in relief  materials to affected households, and the set-up of 39 isolation centers across the country.

  1. Creation of a NGN100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions; so far 60 health care related projects are being funded to the tune of over N60 billion as a result of the intervention.
  2. Creation of a research fund, which is designed to support the development of vaccines in Nigeria.
  3. Establishment of a N1 trillion facility in loans to boost local manufacturing and production across critical sectors; 53 major manufacturing projects, 21 agriculture related projects and 13 service projects are being funded to the tune of over N360 billion from this facility.

Results of our interventions

The impact of these measures along with the removal of restrictions on movement and resumption of international travel, led to improvement in key indicators of the economy, as several economic activities returned to positive growth.

A sectoral assessment of economic activities in the third quarter indicates that the economy witnessed positive growth in key sectors such as Information and Communications Technology, Agriculture, Health, Construction, Finance and Insurance and Public Administration. The Agricultural sector continued to record positive growth supported by productivity gains in the sector, interventions by the government, and improved demand for local produce.

The Manufacturing Purchasing Managers Index, in the month of November stood at 50.2 points, indicating an expansion in manufacturing activities after six months of contraction. A total of 18 sectors recorded positive growth in the third quarter relative to 13 sectors in the second quarter, which reflects significant improvement in economic activity.

Furthermore, 36 out of the 46 economic activities tracked by NBS, reflected positive improvements in growth, which includes activities that recorded negative growth.

In the Investors and Exporters Window, close to $150m is being traded daily as a result of our measures to sanitize activities in the foreign exchange market. In addition, the Nigerian Stock Exchange All Share index rose by 65 percent between April and November 2020, reflecting improved sentiments by investors on the fundamentals of publicly listed companies. As a result of these measures, GDP growth in the third quarter, improved to -3.6 percent from -6.1 percent in quarter two, even though the economy fell back into a recession. We however expect that Nigeria would emerge from the recession by the first quarter of 2021, due to high frequency data that indicates continued improvements in the non-oil sector of our economy.

Financial System Stability

With the decline in economic activities, the CBN instituted measures in the banking system, in order to prevent an economic crisis from spilling over into a financial crisis.

Inaction on our part would have led to a wave of bankruptcies by firms along with rising unemployment, which would ultimately have a significant impact on the balance sheet of banks. As a result, we ensured that;

  1. Banks made adequate capital provisions to cover for unexpected losses
  2. We supported viable businesses that had been affected by the pandemic through access to our intervention funds

III. We enabled banks to restructure loans granted to sectors affected by the

pandemic. As a result of these measures, NPL ratios has remained low at 5.7 percent. The capital adequacy ratio of the banking industry, at 15.5 percent, remains above the prudential requirement percent. In addition, return on earnings in the banking sector was over 21 percent as at October 2020. Similarly, Other Financial Institutions (OFIs) recorded a remarkable improvement as aggregate assets grew by N582 billion, or 16.94 per cent (year-on-year), to N4.02 trillion as at end-September 2020.

While the news of the continued growth in the banking and finance sector in the third quarter of the year is encouraging, the ultimate strength of our financial system would depend on three key factors;

  1. Ensuring that banks have adequate capital buffers to withstand similar pandemics.
  2. Developing adequate internal controls that will be able to identify potential risks to banks, such as cyber threats, as well as putting in place measures to contain these risks.

III. Being able to adapt your business model to changes taking place in the business environment.

This last point is vital as COVID-19 has demonstrated the impact externally induced disruptions could have on the Nigerian economy. It is therefore imperative from an economic as well as a security perspective, that the banking and financial system works to support growth in sectors that have significant growth potential, and can enhance the resilience of the Nigerian economy, in the face of external shocks.

Outlook

With sustained implementation of our intervention measures, we do expect that the Nigerian economy could emerge from the recession by the first quarter of 2021. We also expect that growth in 2021 would attain 2.0 percent. However, downside risks remain, as restoration of full economic  activities, particularly in service related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world.

Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.

We must therefore find ways to insulate our economy from the impact of these shocks through our diversification efforts, while also working to ensure that we adhere to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities.

Our actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 & 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices.

Given the fact that the rise in inflation is not due to monetary factors but rather the prevalence of structural rigidities and supply shocks, traditional tools of monetary policy may not be helpful in addressing current inflationary pressures. Rather, a more useful policy will be the supply-side measures implemented by the Bank. As a result, emphasis will be placed on strengthening the development finance initiatives of the CBN in order to stimulate greater production and reduce unemployment.

We intend to increase our support for measures that will aid improve cultivation of local produce in Nigeria, with particularly emphasis on improving our yield levels, as food inflation continues to remain the key driver of inflationary trends.

The banking sector therefore has a significant role to play as a facilitator of growth in the agriculture sector, through its intermediation function. Some of the opportunities in the agriculture sector that banks should explore include ways to address some of the existing gaps in the agriculture value chains, such as storage centers, transport logistics, and technology  platforms, that can enable rural farmers to sell their produce directly to the markets. These measures would help to improve productivity of farmers, reduce post-harvest losses, increase access to finance for farmers and improve sourcing of local raw materials for processing by manufacturing and industrial firms. It will also aid improved production of local goods, enable the creation of jobs, while supporting the growth of other sectors of our economy such as manufacturing, and transportation.

Information Communication Technology

Another sector which has emerged as a significant source of resilience in mitigating the impact of COVID-19 on the economy, has been Information and Communications  Technology (ICT). In the third quarter of 2020, the ICT sector made contributions of over 17.8 percent to GDP growth, 47 percent higher than its contributions a year earlier.

The growth of startups in the fintech and health care space rose in response to the pandemic. It is important that we leverage ICT as an enabler for growth in key sectors of the economy.

ICT start-ups are emerging to support SMEs, farmers, and in providing quality learning to students. It is important that the banking sector consider viable IT firms in these areas that have the potential to not only serve the needs of the local market but are also able to export ICT related services to countries across the world. India for example exports close to a $100bn worth of ICT related  services every year and I believe that our ICT industry can make significant contributions to our export earnings.

The Central Bank recently issued Payment Service Banks licenses to 3 firms as part of our efforts to drive financial inclusion and ensure that majority of Nigerian citizens are banked. The Payment Service Banks, along with Mobile Money Operators and Banks are expected to leverage ICT channels in improving penetration of digital financial services and products to Nigerians. Driving sustainable growth of our economy would require that the banking industry, support the growth of ICT firms that are inclined to improve productivity across key sectors in the economy.

Infrastructure Finance

Another critical area that the banking sector ought to consider for stable growth of our economy is Infrastructure Finance. With the decline in revenues due to federal and state government as a result of the drop in crude oil prices, alternative ways of funding infrastructure are critical if we are to generate sustained growth of our economy. As we are all aware, the cost of logistics is often seen as a significant impediment to the growth of businesses in the country.

A well-built infrastructure system, comprising hard infrastructure such as roads and ports, and soft infrastructure such as broadband penetration, can have a multipliereffect on growth by enabling the expansion of business activities in the country. We believe that a well-structured infrastructure fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.

Conclusion

Distinguished ladies and gentlemen, in concluding my remarks, let me assure all Nigerians that the Monetary and Fiscal authorities are alive to their responsibilities to restore the economy back to recovery.

At this point, I would like to seize this opportunity to appeal to Nigerians, particularly our Media Economic Analysts.

We confess that the problem we face today is of a global dimension. The global economy is challenged, just like the Nigerian economy. My appeal to our media analysts  is that in the course of conducting their analysis of the Nigerian economy, they should realize that their public comments particularly if they are alarmist, create panic in our environment. We cherish their counsel but urge that they be more constructive in their pungent criticisms, which could hamper our efforts to return our country and economy back to recovery. When you overdramatize the problem, you create panic that slows the process of recovery.

While COVID-19 has brought on several challenges to our economy and indeed the banking sector, it offers a unique opportunity for us to build a more resilient economy that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of our economy. Proactive steps on the part of stakeholders in the banking and financial system in supporting the growth of sectors such as agriculture, ICT and infrastructure, will strengthen our ability to deal with the challenges that have been brought on by COVID-19 while enabling the growth of our economy in general.

I thank you for your attention.

Godwin I. Emefiele (CON)

Governor

Central Bank of Nigeria

27th November 2020