CBN Explains Why Nigeria’s Economy May Slip Back Into Recession
The Monetary Policy Committee of the Central Bank of Nigeria (CBN) on Tuesday issued a warning that the weak economic fundamentals currently being shown by the economy were putting the country’s exit from recession under threat.
Speaking with newsmen shortly after the two-day meeting of the MPC members held at the headquarters of the apex bank, the CBN Governor, Mr Godwin Emefiele, said the economy had started showing signs of weakness.
Bear in mind that the Africa’s most populous nation’s economy exited recession in 2017 after suffering contraction for five consecutive quarters.
But the CBN governor stated that the committee was concerned that there was a fresh threat of recession as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarters of this year, respectively.
In his explanation, the apex bank’s governor disclosed that the slowdown emanated from the oil sector, with strong linkages to employment and growth.
For instance, Emefiele said the late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debts, and low minimum wage were some of the risks to output growth.
Others, according to him, are the impact of flooding on agricultural output, continued security challenges in the North-East and North-Central zones, and growing level of sovereign debts.
His words: “The MPC observed that despite the underperformance of key monetary aggregates, headline inflation inched up to 11.23 per cent in August 2018 from 11.14 per cent in July 2018.
“The near time upside risks to inflation remain the dissipation of the base effect expected from 2019 election related spending, continued herdsmen attacks on farmers and episode of flooding, which destroyed farmlands and affected food supply ultimately.
“In this regard, the committee urges the fiscal authorities to sustain implementation of the 2018 budget to relieve the supply side growth constraints so that they can address the flooding, which has become perennial on a permanent basis.
“Relative stability has returned to the foreign exchange market buoyed by the robust external reserves, with inflation trending downward for the 18th consecutive month.”
“The gains so far achieved appeared to be under threat following the new data, which provides evidence of weakening fundamentals. The committee identified rise in inflation and pressure on the external reserves created by the capital flows reversals as the current challenges to growth.
“It noted that the underlying pressures have started rebuilding and capital flows reversals have intensified as shown by the bearish trend in the equities’ market even though the exchange rate remains very stable.
“The committee was concerned that the exit from recession may be under threat as the economy slid to 1.95 per cent and 1.5 per cent during the first and the second quarters of 2018, respectively.
“The committee noted that the slowdown emanated from the oil sector with strong linkages to employment and growth.”
On what could be done to stimulate economic activities, the CBN governor said that though growth remained weak, the effective implementation of the 2018 Federal Government budget and policies that would encourage credit delivery to the real sector of the economy might boost aggregate demand, stimulate economic activity and reduce unemployment in the country.
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