The Nigerian economy will experience a slow growth rate in 2023 due to acute cash crunch in the first quarter that marred economic activity in Africa’s biggest economy.
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Fitch Solutions, in its Africa Monthly Outlook report, predicts that Nigeria’s economy will grow by only 2.3% this year, when compared to the 3.1% in 2022.
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“We forecast that Nigeria, Sub Saharan Africa’s largest economy and oil producer will record below-trend growth of 2.3% in 2023, down from 3.1% in 2022.
The fragile state of the economy, which has experienced two economic recessions in six years and a scarcity of Naira notes, with currency in circulation hitting its lowest in 14 years during the first quarter.
The decision of the Central Bank of Nigeria to demonetise high-value banknotes created acute cash shortages in Q1 2023, which disrupted commercial operations and prevented payments.
You see, the cash crunch disrupted economic activities, inflation rate and influenced hikes in interest rates.
The push up was massive.
Nigeria’s inflation rate accelerated to 21.91% in February 2023 from 21.82 in January, fueled essentially by the cost of energy, food, and Naira scarcity, according to the National Bureau of Statistics.
Fitch Solutions also reported that February’s disputed general election will have disrupted business activity.
It said that the cash crunch coupled with weak private sector activity will weigh on economic growth.
According to Fitch, Nigeria’s PMI fell to a two-year low of 44.7 in February.
The monthly PMI by Stanbic IBTC Bank showed that the headline PMI declined to 42.3 in March from 44.7 in the previous month.
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The Stanbic IBTC PMI report said as in the case in February, there were widespread reports from companies that customers were unable to commit to spending given cash shortages.
“This led to a substantial decline in new business, with the pace of contraction more pronounced than in the previous survey period.”
Fitch Solutions also forecast that Nigeria’s crude output will stagnate at an average of 1.5mn b/d in 2023, following a record decline of 14.0% in 2022.
