COVID-19, Oil Price Volatility Threaten Economic Recovery – LCCI
The Lagos Chamber of Commerce and Industry says the resurgence of COVID-19 pandemic and significant oil price volatility are the greatest threats to economic recovery in 2021.
The chamber predicted that economic recovery to growth trajectory would take full course by the second quarter of 2021 in the absence of shocks in its report entitled ‘Economic and business review for year 2020 and outlook for year 2021’.
The report signed by the Director-General of LCCI, Dr Muda Yusuf, was made available to our correspondent on Sunday.
It stated that Nigeria’s recovery in 2021 would be similar to 2017 trends in which growth recovery in Q2-2017 was facilitated by a rebound in international oil prices rather than government’s intervention efforts.
It stated, “Recovery to growth trajectory is expected to take full course most likely in Q2-2021 due to base effect of Q2-2020 when the output contracted steeply by 6.1 per cent.
“We expect the pace of recovery to remain subdued within the region of one per cent in the year 2021 in the absence of shocks.
“In our view, Nigeria’s recovery prospects depend largely on oil price and production level as GDP performance in recent quarters has significantly mirrored trends in both variables.”
The chamber estimated that the economy would record contraction between one or two per cent by the end of 2020, adding that the magnitude of contraction in 2020 would be more severe compared to 2016’s annual contraction of 1.62 per cent.
Economic analysts at LCCI said without bold policy to address foreign exchange shortage, escalating production costs, high regulatory costs, infrastructure inadequacies,
and delayed cargo clearance constraints to the ease of doing business limitations would persist in 2021.
The chamber said, “These constraints will be more profound on businesses in the real economy. We believe the sluggish pace of recovery will continue to subdue consumer demand, albeit the impact on earnings performance will be disproportionate across sectors.
“While most MSMEs will struggle to survive in year 2021 amid unfavourable economic conditions, we expect most large corporates to demonstrate resilience in the coming year.
“We expect the economy to return to the path of positive growth in the second quarter of 2021 and this would expectedly impact on the macroeconomic environment, which may ease some of the critical economic conditions currently impeding economic growth.”
The LCCI was optimistic that the commencement of operations at the Dangote Refinery next year would reduce Nigeria’s demand for imported fuel with a consequent effect on pump price.
It noted that forex supply would face continued pressure in 2021 in the light of relatively lower dollar inflows from oil, foreign investment, and diaspora remittances.
According to the chamber, the Central Bank of Nigeria is expected to sustain forex demand management strategies via rationing and restricting access to forex for food imports.
In the coming year, the LCCI said the CBN would most likely maintain and initiate more demand management policy measures to taper growing demand for forex amid weak dollar inflows.