Nigeria could be on the cusp of exiting its longest recession in 25 years, however pressure point remain which suggests any such recovery would be fragile at best.
Leading indicators data suggest the economic picture is becoming brighter in Nigeria.
The non-oil sector returned to growth in Q1’17, the PMI rose to an over one-year high in May and oil production has increased significantly since last year’s nadir, following improved security situation in the Niger Delta region.
Analysts also say many determining themes from H1’17 are likely to filter through to H2’17, giving a boost to growth.
“Redress of the foreign exchange (FX) market, security of oil production infrastructure, and the efficiency of budget implementation will play significant roles in shaping the year. We revise our forecast for 2017 GDP growth to 0.8% (previous: 0.7%), supported by consistent improvements in manufacturing output as well as an increase in crude oil production,” analysts at investment firm Cardinal Stone Partners, said in a July 19th note to investors.
With the high base of 2016 and the upcoming harvest season, Cardinal Stone projects that headline inflation should decline to 14 percent by December 2017.
This should be positive for consumers although, the evolution of the FX market will be a key factor.
“With the new advancements in the production of Shale gas, lower oil price is a key risk to keep in view in H2 given the direct implication on recent improvements in FX liquidity. Thus, a negative change in the current FX regime could throw our GDP and inflation targets off course,” Cardinal Stone said.
For equity markets which have surged 24.7 percent this year the trend may be set to continue into the second half of 2017 on expectations of improved portfolio inflows and sustained participation of domestic investors.
“Our outlook for local bond yields in H2’17 is largely mixed and depends on 2 major factors – the apex bank’s decision to either retain high interest rates by sustaining its aggressive liquidity mop-ups or slash rates in response to falling inflation and need to reduce government’s borrowing cost given the likelihood of increased local borrowings to fund the 2017 budget,” Cardinal Stone said.
