Cape Economic Research and Consulting, an economic think-tank group, has projected that Nigeria’s economic outlook for the third quarter of 2023 maintains its resilience, albeit with a moderated tone, driven by substantial policy reforms.
In its Economic Newsletter for August, which was shared with NIGERIAN ANCHOR on Saturday, the think-tank emphasized that the effects of subsidy removal and the recent exchange rate policy adjustment are gradually permeating the economy, resulting in elevated inflationary pressures and anticipated dampening of aggregate demand.
The report underscores the lasting impact of subsidy removal and exchange rate unification until households and businesses fully adapt to the new economic landscape. The implementation of essential support measures is anticipated to bolster the economy’s resilience. Consequently, the report predicts that output growth will remain positive during the third quarter of 2023.
CAPE observed that the heightened cost of production, fueled by significant increases in input costs, including wages, has led to a slowdown in production.
As the government prepares to roll out relief measures to mitigate the repercussions of recent policies on the economically disadvantaged, aggregate demand and output are projected to respond favorably.
The report anticipates a further increase in inflation for August 2023. Projections indicate that headline food and core inflation could rise to 23.51%, 26.41%, and 21.34% respectively.
The main drivers of this forecast are food prices, exchange rates, and short-term assets, contributing 5.94%, 1.96%, and 0.44% respectively.
CAPE also highlights the macroeconomic implications of persistent negative interest rates, including low savings and investment, the emergence of parallel markets with higher interest rates, inefficient resource allocation, and suboptimal investment efficiency.
Additionally, these rates constrain the government’s capacity to raise resources through bond issuance.
The newsletter sheds light on the tightening stance adopted by numerous central banks in both advanced and emerging economies throughout 2022 and the first half of 2023.
While this approach has led to price moderation in some economies, core inflation remains relatively persistent. However, these measures have brought about output moderation and financial stability, accompanied by an elevated risk of potential financial crises.
