Inflation compounds Nigeria’s economic woes

Nigeria’s economy may be heading to stagflation going by headline inflation, gross domestic products, GDP, and unemployment reports of National Bureau of Statistics, NBS, as well as feelers from the Central Bank of Nigeria, CBN, and economy analysts last weekend.

Stagflation is an inflationary period accompanied by rising unemployment and declining economic growth rate. All these factors inherent in an economy of stagflation are already within the Nigerian economy as indicated by the various reports.

NBS report, last week, indicated a sustained inflationary pressure rising to 9.4 percent in the month of September, with economy analysts pointing to a double digit by next quarter.

Also, NBS report shows a steady decline in GDP as in the first quarter of 2015, Nigeria’s GDP growth rate declined by 1.98 percentage point to 3.96 percent in real terms, year-on-year, and lower by 2.25 percentage points from the corresponding quarter of 2014.

The GDP rate declined further to 2.35 percent in the second quarter.

Job losses


In its Unemployment/ Underemployment Watch report for second quarter, NBS said the number in full employment decreased by 1,317,700, explaining that “a drop in number of full employment, despite a rise in the labour force (number of people available for work) can be attributed more to job losses or previously fully employed persons choosing or being forced to work part time or in underemployment.”

Analysing the NBS inflation report, weekend, economists at Afrinvest Group, a Lagos-based financial institution, said: “The slowing GDP growth coupled with the rising inflation is a situation which best describes the economy as being in a period of stagflation.

“At 9.4 percent, headline inflation rate has moved further away from the 6.0 – 9.0 percent target band of CBN, while also inching closer to the double digit mark.”

Forex effect

According to the group, the rising price level stems from the recent weakening macro-economic fundamentals around foreign exchange prices, which have had debilitating impact on the cost of production and prices of goods and services.

“Whilst CBN is still committed to stabilizing aggregate price level in the economy through its monetary policy tools, our analysis of the macro-economic ambience suggests that the apex bank may not be employing a major tool to curtail mounting pressure on prices in the near term.

“In addition, the slowing GDP growth coupled with the rising inflation (a situation which best describes the economy as being in a period of stagflation) places the monetary authority in a situation of dilemma in using a major policy tool such as Monetary Policy Rate, MPR, in addressing price and output concerns.

“Hence, the need to stick to an objective — we think the CBN would prefer the former.”

CBN’s assurance

Despite the growing concerns over the impact of declining revenue resulting from low oil prices for over a year, CBN Governor, Mr. Godwin Emefiele, has said the economy was not heading towards recession, adding that the current dip in the nation’s revenue was a global development, which is not peculiar to Nigeria.

According to the National Bureau of Economic Statistics, NBES, economic recession is a situation of significant decline in activity across the economy, lasting longer than a few months.

It is visible in industrial production, employment, real income and wholesale-retail trade.

The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s GDP, although the NBES does not necessarily need to see this occur to call a recession.

Emefiele, who spoke at the end of the IMF/World Bank annual meetings in Lima, Peru, last week, said rather than interpreting some of the recent monetary and foreign exchange policies by CBN as a sign of an economy sliding into recession, the challenge before Nigerians was to accept the policies as a way of reversing declining revenue.

He said: “Nigeria is not sliding into recession. We have had two quarters of slow growth; even the global economy has revised its growth outlook from 3.8 percent in April to three percent at this meeting.”

Emefiele’s prediction

The same Emefiele speaking two weeks earlier at the end of the Monetary Policy Committee, MPC, meeting in Abuja, lamented that with “two consecutive quarters of slow growth, the economy could slip into recession in 2016 if proactive steps are not taken to revive growth in key sectors of the economy.

“The overall economic environment remains fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance.”

In the face of the prevailing circumstances, the MPC advocated that a “synergy between monetary and fiscal policies remains the most potent option to sustainable growth.”

However, a top executive at the apex bank’s research division told Vanguard yesterday that going by their prognosis, the economic horizon was tending towards recession if the trend in GDP did not reverse by next quarter.

The source added that all economic indicators in the apex bank’s research showed that the economy was already in stagflation.