“Following the Brexit vote (in Britain) and the recent outcome of the US Presidential Elections and uncertainties surrounding both events as well as the regime of negative interest rates and heavy fiscal and monetary stimuli in Japan and elsewhere, we expect a resurgence of aggregate demand and even higher price increases.”
This was the conclusion drawn by the Central Bank of Nigeria (CBN) Monetary Policy Committee after its meeting between yesterday, Monday and today, Tuesday, in Abuja, Nigeria’s Federal Capital Territory.
In a Communique No 110, the CBN said that the path to the modest improvements in the advanced economies has increasingly turned fragile owing to persistent uncertainties.
“While still being expected to unravel, the BREXIT shocks have been rapidly followed by the outcome of the U.S. Presidential Elections; a development which has created its own uncertainties. Accompanied by the planned referendum in Italy, and general elections in France and Germany, the global political environment could not be more uncertain.
“In effect, current judgments about growth prospects in the first half of 2017 could be overly optimistic. The IMF’s current outlook for global growth for 2016 which was revised to 3.1 per cent in July and retained in October could be missed by a significant margin.
“The World Bank has been more cautious in retaining its June 2016 global output growth projection of 2.4 per cent. Headwinds to global growth prospects are also emanating from weak trade and financial conditions.
It said that the meeting of the Monetary Policy Committee was held amidst relatively subdued global and domestic economic and financial conditions.
The Committee, the communique said, evaluated the global and domestic macroeconomic and financial developments as well as the challenges to the domestic economy up to November 2016, and the outlook for the first quarter of 2017.
“In attendance were 10 out of 12 members.
“The Committee acknowledged the tapered growth in global output, stemming from relatively unbalanced risks to the global economic outlook. Global recovery remains fragile in the advanced economies while the emerging markets and developing economies (EMDEs) continue to struggle against strong headwinds, including low commodity prices, slowing demand and instability of capital flows.
“The OECD’ Economic Forecast, September 2016 Update, emphasized that both elements underpin the current low-growth trap facing the global economy.
“The United States (US) economy exceeded it’s growth expectation in Q3 2016, growing at an annual rate of 2.9 per cent, a significant uptick from the average growth rate of 1.1 per cent in H1 2016. The enhanced performance of the economy was attributed largely to the growth of inventories and robust surge in exports, coupled with improved consumer spending, even as the mining sector recorded a pull back. “Japan’s economy grew at a seasonally adjusted annualized rate of 0.2 per cent in Q2 of 2016 compared with 1.7 per cent in Q1 of 2016. The moderation in growth was largely attributed to weak wage growth and a strong yen. The Bank of Japan (BoJ) in a rare move at its September MPC meeting set a target for government bond yields and introduced an inflation-overshooting commitment. The Bank voted to apply an interest rate of minus 0.1 per cent to the policy rate on balances in current accounts held by financial institutions.
“The Bank also announced a plan to purchase Japanese Government bonds up to JPY 80 trillion (approximately USD788 billion), among series of policy measures taken towards achieving the price stability target of 2 per cent. The government had, in August, approved a fiscal stimulus of ¥13.5 trillion (US$132 billion) in a spirited attempt to jumpstart the economy.
“Real GDP in the Euro area is expected to maintain or outperform its Q2 growth rate of 0.3 per cent in the third quarter. While short-term downside risks from the Brexit vote have largely subsided, the long-term potential economic impact remains uncertain. As such, the zone’s growth path remains challenged. At its October 20th, 2016 meeting, the Governing Council of the European Central Bank decided to retain its key interest rates on refinancing operations, the marginal lending facility and the deposit facility at 0.00, 0.25 and -0.40 per cent, respectively. The Council also reaffirmed its commitment to sustain its quantitative easing programme of monthly asset purchases of €80 billion (US$85.6 billion) until March 2017 and beyond, as economic conditions dictate.
“The growth outlook for the UK in 2016 was upgraded to 1.8 per cent from 1.7 per cent, although that for 2017 was downgraded to 1.1 per cent from 1.3 per cent. The Bank of England (BoE), at its November 2nd meeting, decided to leave its benchmark interest rate unchanged at 0.25 per cent as part of its earlier commitment to support output recovery in the aftermath of the Brexit vote. In addition, the Committee voted to continue its quantitative easing programme of £435 billion.
“Whereas some Emerging Market and Developing Economies (EMDEs) continue to contend with low capital inflow and unstable macroeconomic environment, the prospects for their recovery look more promising. The IMF (WEO October 2016 Update) projected growth rate of 4.2 per cent, an upward review from 4.1 per cent projected in July 2016 for the EMDEs. The marginal improvement in growth outlook is expected to be powered by improvements in India and China.
“Global inflation rose moderately in response to rising prices in the advanced economies due to the modest recovery in oil prices. However, their central banks are expected to stay the course on accommodative monetary policy. Following the Brexit vote and the recent outcome of the US Presidential Elections and uncertainties surrounding both events as well as the regime of negative interest rates and heavy fiscal and monetary stimuli in Japan and elsewhere, we expect a resurgence of aggregate demand and even higher price increases.” [myad]
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