ECONOMIC TRENDS: STIMULUS PACKAGES AND GEOPOLITICAL JITTERS

31-10-2024

Economic trends impacting both local and global markets, like China’s Stimulus Package and geopolitical tensions in the Middle East that affect crude oil prices, Nigeria’s fiscal policies, and financial market sentiments, are areas discussed in this article.

China’s Stimulus Intervention

China’s economy isn’t growing as fast as the government wants it to, so they have decided to play the “stimulus game”. A lingering property crisis (from the Evergrande crisis of 2021) and wavering consumer confidence have forced the government into plans that seem more like a mid-course correction than a robust recovery strategy, with reduced interest rates and a bit of pump-priming here and there.

The early euphoria over government announcements fizzled out quite quickly as home sales dropped this year. Despite a few attempts to revive the property market, the results have been mixed as only 4% of the $42 billion initiative aimed at promoting home purchases was utilized by June.

EU Tariffs: The Electric Vehicle Showdown

The European Union (EU) decided to crank up tariffs on Chinese-built electric vehicles to a whopping 45.3%. This is like bringing a sword to a pillow fight—bold, unexpected, and bound to stir up some drama.

The reason? Well, they claim Chinese subsidies are unfairly undercutting European car manufacturers. The EU’s probe into the electric vehicle market showed that Chinese automakers benefited from massive subsidies, making it tough for their European counterparts to compete.

Employment and Inflation Update – US, Eurozone

In the US, the Core Personal Consumption Expenditures (PCE) index crawled up by a meager 0.1% month-on-month—like that friend who shows up to the party but doesn’t bring any snacks.

Meanwhile, September’s Non-Farm Payroll printed a surprising 254,000 jobs, making it clear that the job market is defying expectations as the unemployment rate dropped to 4.1%.

Over in the Eurozone, inflation cooled to 1.8%. In response, the European Central Bank (ECB) decided to cut interest rates by 25 basis points to 3.25%.

Geopolitical Tensions and the Oil Market

Now, we turn our gaze to the Middle East, where Iran’s recent missile strikes have turned geopolitical tensions into an unwanted blockbuster sequel.

Geopolitical tensions in the Middle East have kept crude oil prices on a rollercoaster ride. Despite price spikes brought on by supply shocks, oil prices have been on a downward trajectory since September last year, leaving investors more cautious.

It’s a classic case of ‘let’s panic and buy oil’ – earlier in the month though. Brent’s price reached a monthly high of $81/barrel before eventually melting to $73.17 as of writing.

Let’s talk about the Nigerian environment,

Nigeria’s Fiscal Policies and Initiatives

The Federal Government has been a busy little Bee. They’ve introduced a ₦10 billion Credit Access for Light and Mobility Fund—because who wouldn’t want extra cash to convert their perfectly working petrol automobiles to compressed natural gas vehicles?

The FG is also doubling down on taxation, seeking to impose a 25% tax on individuals earning over ₦100 million yearly and a 5% excise duty on telecommunications and betting services.

On the equities front, it seems Finance and Oil & Gas companies are the only ones having a good year as Consumer Goods firms struggle with crippling debt burdens and foreign exchange losses.

The country’s economy still struggles as the IMF projects a 2.8% growth in 2024, down from earlier projections of 3.1%. At least the Naira is beginning to stabilize (the IMF’s words, not ours).

Cabinet Reshuffle

In a dramatic cabinet reshuffle, President Bola Tinubu decided it was time for some ministerial musical chairs. Ten ministers got new ministries, five were shown the door, and seven new faces were nominated.

The Ministry of Nigeria Delta Development has morphed into the Ministry of Regional Development, and the Ministry of Sports Development was dissolved (does this mean we’re not allowed to play sports anymore?).

Tax Exemptions in the Oil and Gas Sector

In a move that has industry folks cheering, the Federal Government rolled out tax exemptions for the oil and gas sector for goods and services that run the gamut from diesel to clean cooking equipment.

Reader’s Corner

Looking ahead, the International Finance Corporation, a member of the World Bank Group and Central Bank of Nigeria plan to scale up local currency financing across sectors like agriculture and energy, promising naira-based funding to ease the currency rollercoaster.

As we wrap up, let’s borrow a nugget of wisdom from Judd Gregg “If we don’t get this economy going, the numbers that represent this stimulus package are going to be small compared to the loss of revenue to the federal government”.

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