Research Document: Macro-Economic Outlook: COVID–19, Global Oil Price and The Nigerian Economy

Posted Mon, May 11, 2020 11:51 AM

The outbreak of COVID–19 in China dampened China’s economic outlook for the year 2020. Efforts to contain the spread of the virus has led to widespread movement restrictions and shutdown of industrial activities. The effect is evident in China’s Manufacturing Purchasing Managers’ Index (PMI), which slipped below the sectoral expansion benchmark of 50 points to 35.7 points in February 2020. This implies the growth figure that will emanate from China will significantly contract and therefore affect the global economy. The regimented movement of humans due to fear of contagion and the inability to secure vaccine continue to dampen economic activities. For the first time since 1992, the economy of China recorded negative growth in Q1’2020, a significant one decline at -6.8 percent down from 6.5 percent in the corresponding period of 2018 and 6.0 percent the previous quarter. However, China is no longer the main concern regarding COVID-19. In the last few months, the United States (US) and some countries in Europe have recorded higher numbers of reported cases and deaths. Most of these countries have implemented movement restrictions, lockdowns, among other measures, to contain the spread of the virus. These measures will have a negative impact on global economic growth in 2020. Advanced economies would drag-down global GDP in 2020. Advanced economies led by the United States will be largely responsible for the significant decline in global Gross Domestic Product (GDP) in 2020 as a result of the COVID-19 pandemic. The International Monetary Fund (IMF) projected global GDP to decline by 3 percent, with countries such as the United States, Germany, United Kingdom and Italy recording significant output decline of 6.1, 7.0, 6.5 and 9.1 percent, respectively in 2020. In Q1’2020 alone, the US has posted a GDP contraction of -4.8 percent relative to 3.1 percent same period last year and 2.1 percent the previous quarter. Likewise, the European Union (EU) has reported slightly lower contraction of -2.7 percent while we await reports of others. Meanwhile, emerging markets continue to feel the heat of the global pandemic. The economies of emerging markets and developing countries expanded by 3.7 percent in 2019, much higher than the global growth of 2.9 percent. Growth was largely driven by China and India, which recorded significant expansion of 6.1 and 4.2 percent respectively in 2019. With the outbreak of the virus, economic activities in emerging and developing countries have been subdued due to lockdowns, movement restrictions, lower foreign investment inflows and declining commodities prices, for those that rely on commodities exports. Subsequently, the IMF downgraded growth outlook for emerging and developing countries to -1 percent in 2020, from an earlier projection of 4.4 percent. Countries such as Nigeria, South Africa, Brazil, Mexico and Russia are projected to have a negative growth rate in the year 2020.