A Window for Reform According to the Fund

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Thursday, April 19, 2018 /08:58 AM / FBNQuest Research    

The IMF’s new World Economic Outlook has left its global growth forecasts of 3.9% for this year and next unchanged from three months ago. Those for the US, incorporating the near-term boost from the Trump administration’s tax reforms, have been lifted from 2.7% this year and 2.5% in 2018 to 2.9% and 2.7% respectively. 

The outlook has stronger growth than in January for the Eurozone, Brazil and South Africa, for which the forecasts are hiked by 60bps and 80bps to 1.5% and 1.7%. It makes no changes for either China or India.   

The underlying message of the outlook, entitled Cyclical upswing, structural change, is that governments have a window to effect reforms before the said upswing and the benefits of the Trump administration’s tax package come to an end. In Nigeria’s case, one could argue that the overdue reforms are not literally urgent with current oil prices: however, failure to make them merely perpetuates the rentier economy and does not allow for an oil price reversal. 

The price assumptions, based on the futures markets, for the Fund’s basket of three crude blends (including UK Brent) are now an increase of 18.0% this year to US$62.3/b and a decline of 6.5% for 2019 to US$58.2/b. 

The outlook’s forecasts for growth in Nigeria this year and next are unchanged at 2.1% and 1.9%.

Trends in world output growth (% chg y/y)

 

 

2017E

2018F

2019F

World

3.8

3.9

3.9

US

2.3

2.9

2.7

Eurozone

2.3

2.4

2.0

Japan

1.7

1.2

0.9

Brazil

1.0

2.3

2.5

Russia

1.5

1.7

1.5

India

6.7

7.4

7.8

China

6.8

6.6

6.4

SSA

2.8

3.4

3.7

Nigeria

0.8

2.1

1.9

South Africa

1.3

1.5

1.7

 

Sources: IMF, World Economic Outlook, Apr 2018; FBNQuest Capital Research

 

We see growth of 2.4% for Nigeria this year, driven by a modest fiscal stimulus, a pick-up in oil production, selective private investment and the boost to fx availability arising from the CBN’s fx reforms. 

These projections of poor growth in sub-Saharan Africa are driven by the weak performance of the two largest economies: elsewhere, the Fund projects 8.5% in Ethiopia in 2018, 7.4% in Côte d’Ivoire and 7.0% in Senegal.
 

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