Impact of Economic Recession on Nigeria Macroeconomic Performance
1.1 Background to the Study
Undoubtedly, parts of the macroeconomic goals which the government strives to achieve are the maintenance of stable domestic price level and full-employment. Macroeconomic performance is judged by three broad measures- unemployment rate, inflation rate, and the growth rate of output (Ugwuanyi, 2004).
Since the advent of economic recession in Nigeria, the economy continues to break records on the downside. Inflation was at 18.63 percent being the highest in 11 years. Foreign reserves currently at N24.5Bn are their lowest in 11 years at which time the country’s GDP stood at US$112Bn, less than a quarter of where it stands today. The naira continues to hit new lows against international currencies, the National Bureau of Statistics has stated that Q2 capital importation of $647.1 million fell by 76 percent relative to the second quarter of 2015 and is the lowest level on record and finally it is predicted that Nigeria’s economy may shrink by 1.7 percent in 2017 which would mark a full year in recession last seen 25 years ago.
The government continues to grapple with rising inflation coupled with slow to negative growth and is in a quandary as to whether to tighten monetary supply to reduce inflation or to increase liquidity to induce growth and create jobs. Against the wishes of the Finance Ministry, the Central Bank during its last policy meeting voted against further easing and maintained interest rates at 14 percent choosing to focus on tackling inflation and retaining interest rates at the current level in order to attract foreign investment into the country via the higher yields on offer.
Economic recession according to National Bureau of Economic Research (NBER) (2015) is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in a real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales.” Economic Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble (Wikipedia, 2011).
Economic recession can also be defined as a negative real Gross Domestic Product growth rate lasting for more than two consecutive quarters (first and second quarters) (Noko, 2016). He noted that there’s a drop in the following five economic indicators: real GDP, income, employment, manufacturing, and retail sales. Noko (2016) argued that recession cannot only be determined by negative real GDP growth rate since a recession can quietly begin before the quarterly Real GDP is out. ,, Discussing Economic Recession on Nigeria Macroeconomic performance.
Udeh (2011) sees recession from the angle of persistent inflation when he noted that, recession is a generalized increase in the level of price sustained over a long period in an economy, that is, a persistent rise in the price levels of commodities and services, leading to a fall in the currency’s purchasing power. In the context of Nigeria, Recession has been attributed to many factors, Noko (2016) argued that Nigeria current recession is caused by poor economic policy, fall in oil output due to activities of the Niger – Delta militants and subsequent fall in oil price, others include over dependence on oil export, inflation due to ban on some basic foods like rise, and infrastructural decay in the country.
It is worthy of note that during the period of economic recessions inflation worsen, unemployment will by skyrocketing – people being displaced out of their job as companies tries to minimize their expenses, naira exchange rate worsen, government and the households curtails their expenses due to low purchasing power, fall in aggregate demand, reduction in social well-being of the general masses – a state of general economic downturn.
Nwuzor (2016) noted that during the period of economic recession, economic hardship knows no limits and boundaries, it affects livelihood of everybody in one-way or the other, and this naturally gives impetus to survival strategies as people work harder and more effective to tackle the new economic situation. Families with little or no investment to resist the effect of recession are most likely to be hit severely – but there are ways this unfortunate condition could be managed. Because reduced income during period of economic recession leads to reduced employment, health care, and social amenities that often leads to general reduction in well-being (Noko, 2016).
Because during economic recession there is slow in economics activities, poor circular flow of money resulting to low earnings by the households. This ultimately reduce their social and economic well-being especially the low income households and as such often led the low income households to starts looking for alternatives sources of income to support their families towards improving their well-being (Nwuzor, 2016).
The direct impact of the economic recession on Nigeria economies has thus far been enormous as most commercial banks in the country refrained from investing in the Nigeria stock market and business ventures. This is why most commentators argue that Africa is so far insulated from the direct effects of the financial crisis. The current economic recession affects Nigeria macroeconomic performance in two possible ways; First, there could be financial contagion and spillovers for stock markets in Nigeria. Stock markets in the region showed some volatility, driven by a sell-off by foreign investors. The Nigerian stock market for instance has been experiencing a continuous downward trend in prices of stocks for over two months now. Majority of the macroeconomic indicators like inflation and unemployment keeps on increasing.
,, Discussing Economic Recession on Nigeria Macroeconomic performance.
For instance, inflation moved from one digit rate of 8.7% in 2015 to as high as 18.63% as at December, 2016. (NBS, 2016). The unemployment skyrocket as high 58% as September, 2016. The fluctuation or the rise in inflation and unemployment has been a serious issue of concern to policy analyst. We need to better understand the nature of the financial linkages, how they occur (as they do appear to occur) and whether anything can be done to minimise contagion. Second, the economic downturn in developed countries may also have significant impact on developing countries particularly Africa. The channels of impact include; the indirect effect of volatile and falling commodity prices, particularly crude oil, on export revenue and the inflow of capital into the region, low remittance from abroad, decline in foreign aids, low foreign direct investment and portfolio investment.
Have you read my article on Causes and solution to economic recession in Nigeria
1.2 Statement of the Problem
A number of interrelated factors contributed to the current economic recession in Nigeria including poor macroeconomic policy, increases in the price of a number of primary commodities (inflation), high interest rates, poor tax system, declining in oil revenue due to fall in oil price and host of others factors that will be discussed in this research work. Unfortunately, the economic recession in the country affected majority of the macroeconomic variables by raising inflation and unemployment up. The rise in inflation and unemployment affected the low income household more than others, as it has reduced their purchasing power, reduce the food available to them.
,, Discussing Economic Recession on Nigeria Macroeconomic performance.
The image below revealed the movement of price within May 2015 to May 2016. Most families that ordinarily spend N20, 000 to provide for the family within a month currently spend about N30, 000 to get the same items they previously get at N20, 000 yet their income have not increased (Noko, 2016).
Economic recession accelerate and exacerbate conditions of poverty and vulnerability among Nigeria families. In countries experiencing recession and economic instability there is likely to be an increase in numbers of families living in poverty. This rise can be fuelled by increased unemployment and insecure employment, leading to family instability. As result of the current economic recession the government have adopted series of measures to address the issue such as increase in taxation to raise revenue, increase in debt borrowing which further creates more debt burden on the economy, cuts and reductions in salaries and welfare payments services for families. ,,,, Discussing Economic Recession on Nigeria Macroeconomic performance.
The current high unemployment, high inflation, high level of poverty, high level of borrowing and debt burden, low standard of living especially among the low income earners, poor social amenities for the rural dwellers, social insecurities leading to communal clash everywhere and many other problems dwindling the Nigeria economy are bye products of economic recession (Noko, 2016).
Thus this research aim at investigating the impact of economic recession on Nigeria macroeconomic performance within the period under review.
1.3 Research Questions
In the course of carrying the research work, the following research question will be addressed by the researcher to include:
- To what extent has economic recession impacted on selected macroeconomic variables of Nigeria?
- What is the causal relationship between unemployment-inflation and Nigeria’s real GDP?
- Objectives of the Study
The broad objective of this study is to examine the impact of investigating the impact of economic recession on Nigeria macroeconomic performance. The specific objectives of this study include:
- To empirically investigate the impact of economic recession on Nigeria’s selected macroeconomic variables.
- To ascertain if there is any causal relationship between unemployment-inflation and Nigeria’s real GDP?
1.5 Statement of Hypothesis
H0: Economic recession has no significant impact on Nigeria selected macroeconomic variables.
H0 Inflation and unemployment has no significant causal relationship with economic recession in Nigeria.
1.6 Significant of the Study
The importance of the finding of this study cannot be overemphasized. This study will be important to the following people:
- Government and policy makers: Government and all policy makers would find this study useful especially in area of policy formulation in addressing economic recession in the country and also policies to address the high poverty level in the country.
- NGO’s: The non-governmental bodies will find the piece relevant in responding to humanities as they will know the area to focus their attention during the period of economic downturn.
- Students and teachers of home economics: This study will be useful to all students of economics. In fact the study will be useful to the general public in solving the problem of economic recession and also coping with economic recession in the country.
1.7 Scope and Limitation of Study
This research will analyze the impact of economic recession on selected macroeconomic variables in Nigeria economy, taking a good analysis on various ways and means put by the government of Nigeria to control inflation and unemployment problem especially during economic recession.
The researcher encountered a number of constraints in the course of this work to include; data sourcing or data inconsistence due to poor nature of information management in Nigeria. Other constraints are; time factor, financial constraints and host of other constraints that prevent the researcher to present a better work than this