Nigeria in v-shaped recession, says CBN

• To record economic growth in Q4 or Q1 of 2021
• Country may not recover quick enough — experts 

By Ifechukwude Kainebi

THE Central Bank of Nigeria (CBN) has said that the nation’s economy has entered a V-shaped recession – meaning it would be entered and exited almost immediately.

According to the apex bank, the economy entered the V-shaped recession in the third quarter, but there is no need  point for panic as there would be recovery and growth in the fourth quarter (Q4) or first quarter (Q1) of 2021.

The bank disclosed this on Tuesday, during the 275th Monetary Policy Committee (MPC) meeting. Chairman of MPC and CBN Governor, Godwin Emefiele, made the disclosure at a virtual media briefing after the meeting.

 He also disclosed that the bank has reduced the Monetary Policy Rate (MPR) from 12.5 per cent to 11.5 per cent. He stated that the MPC retained all other policy parameters, except the asymmetric corridor that changed from +200 and -500 basis points to +100 and -700 basis points around the MPR.

Emefiele said the liquidity ratio was left at 30 percent and Cash Reserve Ratio (CRR) retained at to 27.5 per cent. He added that the decision to reduce the MPR was to sustain ongoing economic recovery efforts and arrest rising inflation.

However, economic and financial analysts have warned that the economy may not recover quickly as expected by people. They projected that it may take a longer period for it to survive the lull, which was birthed by 2016 recession and worsened by the Coronavirus pandemic.

The experts made the disclosure at the just-concluded third quarter Economic Outlook webinar organised by Nairametrics tagged ‘Projecting Nigeria’s Economic Recovery.’ The experts argued that the recession would take a longer time to fizzle out, as it has a less-clearly defined shape, adding that the recovery will take a U-shape.

The panelists included Andrew Nevin, Partner and Chief Economist, PwC Nigeria; Bashirat Odunewu Group Executive, Energy and Infrastructure, FirstBank Plc; Guy Czartoryski, Head of Research, Coronation Asset Management; Rolake Akinkugbe-Filani, Chief Commercial Officer, Mixta Africa, and Fola Fagbule, Senior Vice President and Head of Financial Advisory at Africa Finance Corporation.

According to them, the V, U, W and L are the major recession shapes used by economists to describe different types of recessions, adding that they are informal shorthand to characterise recessions and their recoveries. The shapes take their names from the approximate shape economic data make in graphs during recessions.

While the V-shaped recession indicates that the economy suffers a sharp but brief period of decline with a clearly defined trough, followed by a strong recovery, the U-shaped recession is longer and has a less-clearly defined trough.

The W-shaped recession, which is also known as a double-dip recession, means the economy falls into recession, recovers with a short period of growth, then falls back into recession before finally recovering, giving a “down up down up” pattern.

An L-shaped recession or depression occurs when an economy has a severe recession and does not return to trend line growth for many years, if ever.

Odunewu projected that some factors would hinder the nation’s economic recovery as desired by the government. She listed oil price which hovers around $40-$45 per barrel, and the low compliance of Nigeria to the OPEC cut deal, which forced the nation to reduce oil production, as well as the 90 per cent dependence by the country on the commodity as its source of national revenue.

She said: “If you look at the combination and the fact that the economy is also opening up now globally and by the end of September, we believe Nigerian economy will be better. I will say it is a U-shape recovery. But the second wave of Covid-19 could be a threat. I hope that never happens but if it does, we may end up in a W shape, which will be worse. If vaccines are available as promised by some nations by the end of October, the recovery may change from U to V shape.”

For Nevin, there will be a lot of pressure on the economy due to states taking over the responsibilities of their economic destiny and the forced nature of the Covid-19 disaster. To break forth, the PwC boss insisted that a great level of investment, unlocking of idle assets must be considered.

 “I am not trying to be an alarmist but if the country does not take advantage of the period to accept some truth, there will be pressure. So, I will call it a U-shape recovery or Rocket shape,” he said.

Akinkugbe-Filani chose a different path. According to her, the reality is that the nation will run out of the letters of the alphabets of recovery. She said she sees the nation as one that lives above its means like seeking to borrow in a way that is not sustainable and seeking an economic construct that may not be sustainable.

She said, “I wonder the type of recovery we are looking at when the fundamentals of the economy have not changed. Regardless of the pandemic, we have always been a cyclical economy because of the oil price and the export-driven oil and the lack of value creation.

   “The recovery for me, in order to be sustainable, we have to learn from the past. The overall spending of the nation is about seven per cent of the GDP. There is still a lack of integration and focus strategy in terms of infrastructure. For recovery from the pandemic, we need to create local demand for our consumption, so that we are not so vulnerable. I will love to see a U-shape recovery but the reality on the ground will lead me to say that the recovery is between U-shape and W-shape.”

Expressing optimism, Czartoryski said there is light at the end of the tunnel though with some complications. He noted that Foreign Portfolio Investment (FPI) is massively down due to the oil price.

 “We should not have to rely on the FPI at all. We are also living beyond our means. We need to create domestic savings like looking into the pension funds, money market, and fixed income funds,” he said.

Also, expressing optimism, the Senior Vice President of AFC, said the nation can only recover the economic lull by working on her trade and investment. He emphasised that government expenditure is never going to be sufficient to take the country out of the woods and it is time for the West African nation to emulate countries like Gabon, China and India, whose investments contribute 30, 40 and 31 per cent respectively to their GDPs when Nigeria only does 14 per cent.