The International Monetary Fund (IMF) has revised its forecast for Nigeria’s economic growth, projecting a slowdown in 2024. In its July 2024 World Economic Outlook, released on Tuesday, the IMF downgraded Nigeria’s growth forecast to 3.1 percent from the previously projected 3.3 percent in April. This adjustment reflects a 0.2 percentage point reduction from the prior forecast.

The IMF attributed the downgrade to lower-than-expected economic activity in the first quarter (Q1) of 2024. Despite this reduction, the IMF maintained its forecast for Nigeria’s economic growth at 3.0 percent for 2025, indicating a stable but modest growth outlook for the country.

Sub-Saharan Africa’s Economic Outlook

In addition to Nigeria, the IMF also revised its forecast for economic growth in the broader sub-Saharan Africa region. The growth forecast for the region in 2024 has been adjusted downward to 3.7 percent from the 3.8 percent projected in April. This revision is closely tied to Nigeria’s economic performance, as the IMF noted that the weaker-than-expected activity in Nigeria’s first quarter significantly impacted the regional forecast.

However, there is a positive note for the future. The IMF increased its forecast for economic growth in sub-Saharan Africa for 2025 to 4.1 percent, up from the April projection of 4.0 percent. This upward revision suggests a more optimistic outlook for the region in the medium term.

Global Economic Projections

Globally, the IMF retained its growth forecast, projecting stable economic growth rates of 3.2 percent in 2024 and 3.3 percent in 2025. The global economic outlook remains broadly unchanged from the April projections, reflecting a steady global economic environment.

For advanced economies, the IMF expects growth to converge over the coming quarters. In the United States, the growth projection for 2024 has been revised downward to 2.6 percent, a 0.1 percentage point reduction from the April forecast. This adjustment is due to a slower-than-expected start to the year. Looking ahead, the IMF anticipates U.S. growth to slow to 1.9 percent in 2025 as the labor market cools and consumption moderates, with fiscal policy beginning to tighten gradually.

By the end of 2025, U.S. growth is projected to align with potential, closing the positive output gap.

Global Inflation Trends

On the inflation front, the IMF forecasts a continued decline in global inflation. In advanced economies, the pace of disinflation is expected to slow in 2024 and 2025. The IMF attributes this slower pace to persistent inflation in service prices and higher commodity prices. However, the gradual cooling of labor markets, coupled with an expected decline in energy prices, should bring headline inflation back to target by the end of 2025.

For emerging markets and developing economies, the IMF predicts that inflation will remain higher and drop more slowly than in advanced economies. Despite this, inflation in these economies is already nearing pre-pandemic levels, partly due to falling energy prices.

Implications for Nigeria and Sub-Saharan Africa

The revised forecasts for Nigeria and sub-Saharan Africa highlight several key challenges and opportunities for the region. The downgraded growth forecast for Nigeria in 2024 underscores the need for robust economic policies and reforms to stimulate growth and address structural issues within the economy.

The potential for increased growth in 2025, both for Nigeria and sub-Saharan Africa, suggests that with the right policy measures, the region can achieve significant economic improvements. Key areas of focus should include enhancing infrastructure, improving governance, and fostering a conducive environment for investment and private sector development.

Nigeria’s Economic Challenges and Government Response

The revised projection is an indication that the Nigerian government under President Bola Tinubu is yet to come up with a clear economic plan that effectively addresses the current challenges. Inflation has continued to rise, particularly food inflation, which has hit 41 percent, pushing many Nigerians to the edge.

The government’s most effective approach so far has been to distribute food, but this measure has only reached a few among the millions of hungry Nigerians. Economists warn that this approach could further stoke inflation, as it means mopping up scarce food supplies from the markets.

The IMF’s downgrade signals that more comprehensive and effective economic strategies are needed to address Nigeria’s structural problems. These issues include high unemployment rates, a volatile exchange rate, and inadequate infrastructure. The Nigerian government has been advised to urgently implement policies that promote sustainable growth and economic stability.

The burgeoning impact of generative AI, which is reshaping industries as diverse as medicine, education, music, and computing, across the globe, has ushered in a fresh concern. While the world is immersed in the consumption of everything AI has to offer, which goes beyond chatbots and image generation tools, the challenge posed by the technology – significant energy consumption – has been noted.

A recent report noted that the demand for electricity to fuel AI’s rapid growth is staggering, raising environmental and logistical concerns that are yet to be fully addressed.

The power consumption of AI has become a critical issue as the technology matures. According to recent reports, major AI developers like Microsoft and Google consumed a combined 48 TWh (terawatt-hours) of electricity in 2023 alone, with each company using 24 TWh. This consumption level surpasses that of over 100 nations, including countries like Ghana and Tunisia, according to a detailed analysis by Michael Thomas.

To put this into perspective, the energy needs of Microsoft’s and Google’s AI operations could meet the entire electricity consumption of Azerbaijan, a nation with a population of 10.14 million and an estimated GDP of $78.7 billion.

Electricity consumption is not the only concern. AI systems also require substantial amounts of water for cooling. It has been noted that a single AI query can use as much water as a standard water bottle.

The environmental degradation associated with AI advancements mirrors concerns previously raised about cryptocurrency mining. Cryptocurrency, particularly Bitcoin, has been criticized for its massive energy consumption. The energy-intensive process of mining Bitcoin led to significant environmental concerns, contributing to China’s decision to ban cryptocurrency mining in 2021.

The country cited the substantial electricity consumption and its environmental impact as primary reasons for the ban. Bitcoin mining’s power demands were so high that, at its peak, it consumed more electricity annually than countries like Argentina and Ukraine combined.

Despite the clear parallels between AI and cryptocurrency in terms of energy consumption, no country, including the United States, is taking substantial steps to address the electricity usage challenges posed by AI.

This lack of action is concerning, given the exponential growth in AI applications and the associated energy demands. AI’s extensive use of resources, which underlines its impact on the environment is emerging amid efforts by companies like Google and Microsoft to champion renewable energy and seek alternative power sources.

Elon Musk, cofounder of OpenAI and founder of xAI, Grok, has been vocal about the potential dangers of unchecked AI growth. Musk has warned that we are on the verge of a significant technological breakthrough with AI, but there may not be enough power to sustain its advancements by 2025.

However, in response to these challenges, some AI leaders are exploring alternative power sources. Sam Altman, CEO of OpenAI, is investigating nuclear fusion as a potential solution to power AI systems. Microsoft has also taken steps in this direction, partnering with Helion to develop nuclear fusion technology. Helion aims to generate nuclear energy by 2028, with current efforts focused on training large language models (LLMs) to expedite the regulatory process.

While nuclear fusion promises a non-existent environmental impact, many scientists and researchers argue it may be too late to address the climate crisis solely with this technology. They suggest that fission and renewable energy sources might offer more immediate and practical solutions.

The high AI energy consumption poses a challenge to the financial success of AI-driven companies like Microsoft. The economic incentives for continued AI development are notable in Microsoft’s market valuation, which recently surpassed $3 trillion, a milestone attributed to its early adoption and investment in AI.

CEO Satya Nadella credited the company’s financial performance, including increases in revenue, operating income, and net income, to the transformative potential of AI. However, this economic success further complicates the issue, as the drive for profit may overshadow the environmental and logistical challenges associated with AI’s energy demands.

The US has been reluctant to roll out regulations to address other AI concerns. Though the Senate has introduced a bill dubbed COPIED Act to address some of the issues, it largely focused on the deepfake concerns. Also, the European Union’s AI Act, even though it covers a wide range of issues, did not touch energy consumption. This means that AI’s high energy consumption is a fresh concern that policymakers must include in their cart of things to do about AI.