Macroeconomic Review 2023 and Outlook for 2024

The growth of the global economy in 2023 is nothing short of a tale of resilience as elevated inflation unprecedented in decades and several other headwinds dampened global growth, pushing the world economy closer to its pre-pandemic growth level. Headwinds from elevated price levels which caused significant drag in consumer demand, sustained interest rate hikes that disincentivised investments, weaker trade, and spates of geopolitical tensions which eroded investors’ confidence by fuelling market uncertainties in addition to triggering supply chain disruptions all tested the resilience of the global economy. 

While these headwinds were fierce enough to reverse some of the post-covid growth recovery of the global economy and drag some major economies to the brink of economic recession, they were not enough to plunge the resilient global economy into a recession as the economy emerged stronger than most outlooks at the start of the year. Global growth settled at an estimated 2.6% in 2023, according to the World Bank, as Central Banks in developed economies approached the end of their monetary tightening streak aimed at reining inflation to their 2% target. On the global horizon, we anticipate a moderate growth, lower inflation, and interest rate cuts after initial pause to observe the inflation-dampening impact of previous rate hikes.

In the Sub-Saharan Africa (SSA) region, economies were confronted with multiple layers of challenges ranging from sluggish growth, elevated inflation levels, debt sustainability problems, steep currency depreciation, and political tensions in 2023. Although external headwinds in the global economy also contributed to the experience, the region’s challenges were more local than global as the macroeconomic performance of the region mirrored the impacts of headwinds arising from economic reforms, power challenges, and matured oil fields in the region’s top 3 economies- Nigeria, South Africa and Angola, respectively. We anticipate an improvement in the region’s performance in 2024 driven by easing financial conditions in advanced economies, sustained domestic monetary tightening, improved revenue mobilisation, greater fiscal discipline and debt restructuring.

In Nigeria, the pro-market reforms implemented by the new administration which appears to be tilting the balance of the economy in the direction of a private sector-led growth model weighed on the performance of the economy in 2023. Specifically, the twin reforms of fuel subsidy removal and exchange rate unification which caused a sharp depreciation of the naira fanned inflationary pressures and led to a more restrictive interest rate environment that jointly weighed on growth. Amidst the removal of the peg on the nation’s exchange rate, the country also experienced problems of FX illiquidity and loss of investors’ confidence which has only started to improve lately as implied by recent Moody’s ratings.

Looking ahead, we anticipate that growth in Nigeria will strengthen to 3.0% in 2024 driven by the rebound of business activities in the non-oil sector as the impact of the twin reforms fades and our continuing expectation of improved oil production and oil prices in the global market. In addition, the Central Bank is more likely to maintain its hawkish posture and raise the MPR further in 2024 to tame inflation which we anticipate will hover around an annual average of 22% by the end of the year. Also, we expect the exchange rate to depreciate further in 2024 and settle significantly above current rates in both the official and parallel markets after initial early gains from government intervention.