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Recession: Economic recovery unlikely soon – Experts predict

By on September 26, 2015

The slow growth that the Nigerian economy is experiencing may not lead to recession any time soon, but recovery will definitely not come quickly, economists have said.

The economists spoke against the backdrop of Tuesday’s warning by the Central Bank of Nigeria’s Monetary Policy Committee that the economy might slip into recession next year.

The experts said although it was unlikely that the economy would go into recession next year, the country was in a serious economic dilemma that might not be resolved anytime soon by both the fiscal and monetary authorities.

The CBN Governor, Mr. Godwin Emefiele, had after MPC meeting in Abuja on Tuesday, said, “Having seen two consecutive quarters of slow growth, the committee recognised that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.”

Nigeria’s real Gross Domestic Product, which indicates the rate at which the economy is growing, fell from six per cent last year to 3.9 per cent and 2.35 per cent in the first and second quarters of this year, respectively.

According to economists, an economy is said to enter into recession if it experiences negative growth in two quarters consecutively.

In the case of Nigeria, the economy can only experience recession next year if its economic growth rate, which was 2.35 per cent as of the second quarter, falls gradually to zero and then to say -1 or -2 per cent for two consecutive quarters.

Most of the economists, who spoke with our correspondent, see this as very unlikely. A few others, however, said this was only possible if the government failed to take adequate measures to mitigate the declining growth trend.

As suggested by Emefiele, the experts agree that the only viable option is for the fiscal and monetary authorities to stimulate growth in critical sectors of the economy.

“The Ministry of Finance will have to come up with ideas and policies that will drive growth in the manufacturing sector,” an economist and Head, Investment Research, Afrinvest West Africa, Mr. Ayodeji Ebo, said.

He added, “There are plans by the government to reflate the economy, and this will be partly done by identifying non-oil sectors that can drive growth. Before next year, we should have had in place policies that will drive investment and improve the economy.

“I don’t think that the economy will go into recession; if nothing is done, it may; but I don’t think the government will fold its arms.”

An economist and Head, Asset Portfolio Management at Meristem, Mr. Taiwo Yusuf, believes the economy may enter into recession faster than expected if the fiscal and monetary authorities fail to stimulate growth in certain critical sectors.

He mentioned power as one of the sectors that the government might need to focus on due to its multiplier effect on the economy.

“I cannot but agree with the Monetary Policy Committee that the economy may slip into recession if the fiscal and monetary authorities fail to stimulate growth in some critical sectors of the economy. It may come faster than we expect if nothing is done,” Yusuf said.

He noted that although the economy might not experience any significant change over the next six to nine months, the long-term prospect was bright.

“Government is already trying to establish development finance institutions, which will provide long-term funding for businesses and this will fuel investment and growth. We expect power supply to improve as well. I don’t think this growth focus will come with inflation because we have yet to reach our optimum productive capacity as a nation,” Yusuf added.

A professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Ogun State, Sheriffdeen Tella, said a considerable improvement in power and fuel supply would improve the nation’s growth figures in the coming months.

As a result, he said it was very unlikely that the economy would slip into recession, but noted that the CBN was only taking precautionary measure to prevent such a trend.

“If we are able to sustain the considerable improvement we are having in power and fuel supply till the first quarter of next year, the economy should recover by itself,” Tella said.

The Head, Investment Research, Sterling Capital, Mr. Sewa Wusu, noted that the MPC had taken an appropriate decision by lowering the Cash Reserve Ratio on public and private sector deposits from 31 to 25 per cent, adding that the action would stimulate bank lending to the economy.

 

[Punch]