FSDH Research, an arm of FSDH Merchant Bank is expecting the Nigerian economy to grow by 2.48 percent in 2019 from a growth projection of 1.94 percent in 2018.
Ayodele Akinwunmi, head of research who disclosed this in Lagos while unveiling the firm’s economic and financial markets outlook for 2019 – 2021, noted that the real GDP in 2018 showed improvement but the economy remains fragile.
In the three years outlook titled ‘bumpy road ahead – policy options and strategies, FSDH said the real GDP in 2018 showed improvement but the economy remains fragile. The real GDP growth rate still remains sluggish – lower than the population growth rate in the country of about 2.78 percent.
As at third quarter (Q3) 2018, the three largest sectors of the economy, which account for 56 percent of the total GDP, recorded positive growth rates. FSDH Research notes that other dominant sectors of the economy which contracted during the quarter recorded lower contractions than were recorded in second half (Q2) of 2018.
Looking at growth drivers, he said agriculture and agro-processing sector will continue to generate investors’ interests as some manufacturing firms adopt backward integration strategies, while expecting the Federal Government of Nigeria (FGN) and state governments to sign more Public Private Partnership (PPP) to develop promote infrastructure development
Construction activities should continue to grow especially, road, and rail, among others.
Emergence of the real estate sector from economic depression also should create job opportunities for all categories of labour.
However, likely risks include possible drop in government revenue and foreign exchange inflow because of expected drop in crude oil exports; elevated inflation on account of removal of subsidy on Premium Motor Spirit (PMS) pump price which is capable of eroding the purchasing power of consumers in the short-term; weak infrastructure in the country leading cost of doing business; expected increase in yields on fixed income securities which may increase borrowing cost and reduce earnings; possible insurgencies in the oil producing states or food producing regions in Nigeria.
On policy options, Akinwunmi expects tax incentives to attract more investments into the country; port reform to improve cost and length of time in international trade; establishment of vocational and technical schools for skill acquisition; and FGN to provide mortgage loan supports for its workers as part of measures to stimulate activities in the real estate.
FSDH Research expects the inflation rate to remain in the double digits in 2019-2021, driven by price adjustments to critical prices such as PMS pump price and electricity tariff; the expected increase in global food prices; increase in minimum wage and depreciation in the value of the currency. The firm”s forecast shows that the inflation rate in 2019 will average 12.50 percent.
The research arm of the bank expects the value of the Naira to depreciate towards N390/US$ in 2019.
“Our analysis of the important determinants of foreign exchange indicates that few factors support stability in the value of the Naira at the current level”, he said.
However, strong growth in both oil and non-oil exports, drop in demand for foreign exchange and implementation of policies to lower inflation rate may support stability in the foreign exchange market. FSDH Research expects a depreciation in the value of the Naira after the 2019 general elections.
Hope Moses-Ashike
