Waltzing Out of Recession Through Lower Consumer Prices, By Uddin Ifeanyi
…both functionaries of state may have been less than responsible in raising hopes prematurely. This is especially so, because even their reading of their preferred index, inflation, is tendentious. A perfunctory reading of the National Bureau of Statistics’ numbers for inflation would show that the outlook for domestic prices are nowhere near as rosy…
Information and culture minister, Lai Mohammed’s address to the biennial convention of the Nigerian Guild of Editors was the latest installment in a series of comments by government officials on the trajectory of the domestic economy. In the address (delivered on his behalf on Saturday) by the Managing Director of the News Agency of Nigeria (NAN), Bayo Onanuga, the minister is reported to have described the economy as “clawing out of the woods of recession in weeks from now”.
The preceding Tuesday, speaking to journalists at the end of a closed-door meeting with the leadership of the Senate, the governor of the Central Bank, Godwin Emefiele was optimistic “that by the end of the second quarter, or latest the third quarter, we should be out of recession that we are in right now”. Given that the statistician-general of the federation sits ring-side at meetings of the central bank’s policy committee, it was tempting to imagine that the governor, having had a peek at the output numbers (from the bean counters) for the first quarter of 2017, was giving us a heads-up.
Tempting. But not true. All the central bank governor had going by way of evidence for his optimism was that we had started to witness a falloff in the prices of commodities, and that as a result inflation was on its way down. In the end, the information minister was simply parroting the central bank governor’s sentiments.
Upon further reflection, it is far easier to see how both functionaries of state may have played fast-and-loose with the concepts that they included in their descriptions of the economy. For starters, an “economic recession” is nothing more than “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters”. Last year, Nigeria’s GDP fell in four consecutive quarters. Consequently, when it is bruited about that we would soon be out of recession, all it means is that in the quarter that this happens, the domestic economy would have grown by some. Arithmetically, it could also be out of recession simply by not growing, so long as it doesn’t shrink.
…the bulk of the effort for a recovery in domestic output this year will come from restoring the stipend to militants in the Niger Delta…and the stitching up by OPEC and its collaborators of the oil market… Government hasn’t done much to improve domestic employment, make investment easier, or improve productivity across sectors.
Inflation may worsen a recession. As would falling prices. But ultimately, what matters for getting out of a recession is that (1) government can spend its way out of it; (2) our exports rise much faster than our imports (growth in trade); (3) consumer confidence increases, and they start to spend; and (4) on the back of a resumption in consumer spend, business investment and the industrial activity associated with it recover.
None of this is happening yet. Indeed, anecdotal evidence would suggest that industrial activity may contract further. Banks have shut branches and laid off staff; while manufacturing concerns have pared the number of shifts they run further, while reducing staff. Indeed, it was reported only recently that 11 state governments continue to owe their staff salaries; and these wage arrears range from two to fifteen months. Not surprisingly, the IMF’s growth estimates for the year rely on improved exports (of crude oil, largely), growth in government spending (from earning more petrodollars), and improved activity in the agriculture sector alone. Without serious changes to how we run the economy, both consumer spending and business investment might continue to drag output down this year.
At 0.8 percent, the IMF’s growth outlook leaves little margin for error. Which is sad, because the IMF has called growth wrongly across the globe in just about every year since the 2007/2008 global financial and economic crisis began. And when one contemplates the agriculture sector, it is obvious how slim this year’s margins are. The problem is not that our agriculture is still largely subsistence and rain-fed. It is instead that the rains do not fall on schedule any longer, and when they do, they tend to fall too much in short bursts.
All of which means that the bulk of the effort for a recovery in domestic output this year will come from restoring the stipend to militants in the Niger Delta (so that the country may export larger crude oil cargoes), and the stitching up by OPEC and its collaborators of the oil market (pushing up the prices for the cargoes that we can sell). Government hasn’t done much to improve domestic employment, make investment easier, or improve productivity across sectors.
…while the economy may well emerge from recession later this year, it definitely isn’t on the mend yet.
In a sense, these downsides might explain the central bank governor’s reticence in being more precise about when we should see a reversal of the economy’s shrinkage. But, still, as an exercise in talking up the economy, both functionaries of state may have been less than responsible in raising hopes prematurely. This is especially so, because even their reading of their preferred index, inflation, is tendentious. A perfunctory reading of the National Bureau of Statistics’ numbers for inflation would show that the outlook for domestic prices are nowhere near as rosy as both the central bank governor and the minister for information and culture have described them.
Indeed, on a year-on-year basis inflation has trended down since February. But this is only because (as I have pointed out elsewhere) inflation this time last year rose by so much, year-on-year. Look at the month-on-month change in domestic prices, however, and a different picture emerges. According to this measure, since November last year, domestic prices have been going up. On a month-on-month basis, the food sub-index of the NBS’s consumer price inflation was up 2.21 percent in March (from 1.99 percent in February). The core sub-index rose 1.32 percent (1.10 percent in February). The urban index was up 1.76 percent (1.52 percent in February). And the rural index rose 1.69 percent (1.45 percent in February).
Thus, while the economy may well emerge from recession later this year, it definitely isn’t on the mend yet.
Image credit: Elite Wealth Management.