Nigeria is in stagflation and this is what it means for all of us


Nigeria’s GDP figures for the third quarter of 2022 indicate that Africa’s largest economy continues to experience stagflation along with a high unemployment rate.

The National Bureau of Statistics (NBS) reported last week that Nigeria’s real GDP grew at a slower pace of 2.25% in the third quarter of 2022 compared to 3.4% in the previous quarter and the growth of 4.03% recorded in the corresponding period of 2021.

Although the economy continues to grow at a tepid pace, the rising inflationary pressure has not abated either, resulting in stagflation. Headline inflation in Nigeria averaged 20.31% in the third quarter of the year from 17.71% and 17.01% in the second quarter of 2022 and third quarter of 2021, respectively.

What is stagflation? Stagflation, also known as recession-inflation, as the name suggests, refers to a period in which slow economic growth coincides with a high rate of inflation and high unemployment.

Nigeria’s real GDP growth has averaged 1.58% from Q1 2019 to date, peaking at 5.01% in Q2 2021 solely as a result of the base period effect of the contraction of the 6.1% registered in the corresponding period of 2020.

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  • The NBS reported earlier in the month that the inflation rate reached a 17-year high of 21.09%, further weakening the purchasing power of Nigerians and forcing them to pay more for less.
  • The high level of inflation has pushed millions of Nigerians below the poverty line. According to the NBS, about 133 million Nigerians are multidimensionally poor, representing about 63% of the population.
  • Nairametrics previously reported that Nigerians spent a monthly average of N9.51 trillion on living expenses, an increase of 14.4% year-on-year. This represents higher spending by average Nigerians due to the rising cost of goods and services.
  • Meanwhile, the unemployment rate as of Q4 2020 stood at 33.3%, with more than 23 million Nigerians estimated to be out of work. The number could have risen since then, considering the plethora of layoffs plaguing the tech industry of late.

Why the slow growth: According to the NBS, the slow growth is due to the base effects of the recession in 2020 and difficult economic conditions that impede productive activities.

Rising energy costs have also affected the operations of many industries in the country, as many organizations have had to reduce working hours to cope.

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For context, data from the Central Bank of Nigeria showed that Nigeria’s Composite Purchasing Managers’ Index (PMI), which indicates the level of productive activities in the economy, fell below the 50-point threshold to 47.2 points. index in August 2022, compared to 50.4 and 51.9 index points recorded in July and June 2022.

In addition, the contraction was due to a decline in production levels, new orders, inventory levels, employment levels, and the lingering impacts to the global economy associated with the Russia-Ukraine war and the ongoing pandemic.

Countries often want some level of inflation, even if it is very low, since it also contributes to economic expansion. However, it becomes a problem that the numbers grow rapidly and do not translate into significant economic expansion.

recent political actions: However, the Central Bank has adjusted the monetary policy rate several times this year to control the rising rate of inflation. Nigeria’s inflation rate has soared unabated amid currency depreciation, food shortages and persistent energy crises.

The main bank, through its monetary supervision, has increased the TPM by a cumulative 500 basis points between May and November 2022. Specifically, the TPM was increased to 16.5%, while the legal reserve (CRR) was also increased to a minimum of 32.5%.

In addition, the central bank introduced new naira notes for the denominations N200, N500 and N1000, with a deadline of January 31, 2023 for all Nigerians to deposit their old notes.

CBN Governor Godwin Emefiele noted that the volume of N500 and N1000 in circulation will be reduced in the long term.

How stagflation affects the economy: The state of stagflation in an economy could have adverse effects on the people and companies that operate in the country, since the cost of operations will increase while income remains relatively fixed. Some of the possible consequences of stagflation include, but are not limited to, the following:

  • job loss
  • More people fall into poverty
  • High unemployment rate as a result of layoffs
  • lower wages
  • Discourage foreign investment
  • More mass exodus/JAPA

How the government could address this: Considering that the factors contributing to the state of stagflation in the country can be attributed to both monetary and fiscal policies, the joint effort of the CBN and the federal government may be required to intervene and improve the state of the economy.

  • Deregulation/elimination of subsidies: Eliminating the subsidy for gasoline consumption in the country could be positive by presenting the industry as a viable destination for foreign investors, which would improve the creation of more jobs and increase economic activities in the sector.
  • Address the infrastructure deficit: The lack of good roads and health facilities, among other facilities, are factors that impede the growth of the economy. If the government invests more in capital projects, this would be reflected in the performance of the economy and remove the bottlenecks that affect the prices of goods and services.
  • Fight inflation with monetary tools: The CBN has been adjusting monetary tools to combat inflation.


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