After suffering a major decline in the first quarter of the year, the stock market seems to have rebounded significantly in Q2 2020, despite growing fears that the economy may officially enter a stagflation at the end of the third quarter of the year.
A stagflation is defined as a persistent high inflation combined with high unemployment and stagnant demand in a country’s economy. Inflation has climbed for the eighth consecutive month to 12.34 percent and the government forecast inflation could rise to 14.13 percent in 2020 while the economy will contract by 4.42 percent. This signals Nigeria could enter its 2nd stagflation in just 4 years, however, investors seem to have overcome the economic fears at least since the start of Q2.
In Q1 2020, the Nigerian Stock Exchange All Share Index declined by 27.2 percent as a global health pandemic combined with an oil price meltdown and nationwide lockdown literally brought the economy grinding to a halt. As the global lockdown has began to ease, oil prices continue to recover, boosting investor confidence and jumpstarting a boom in the stock market. Unlike the first quarter of the year, the second quarter has been more fruitful for investors who have seen the All Share Index rise by 18.6 percent quarter to date as at Friday after market close.
Some analysts are now starting to question to stock market rapid climb to pre-crisis levels as the threats which led to the initial stock price collapse remains and have gotten worse in most cases.
The health pandemic appears to have worsen in Nigeria. As at the start of Q2, there were only 111 recorded coronavirus cases in Nigeria but as at June 4 2020, the number of coronavirus cases in the country had risen 100 folds to 11,166 recorded cases and 323 deaths in the country.
The economic woes have continued which has caused the federal government to commence a gradual reopening of the country after weeks of enforcing citywide lockdowns in some of the major economic centers of the country.
The International Monetary Fund (IMF) had earlier forecasted that Nigeria will see her economy contract by 3.4 percent in 2020. However, the Federal Government of Nigeria is taking a more pessimistic stance, forecasting that the economy could contract by as much as 4.42 percent in its revised 2020 budget.
In fact, the Federal Minister of Finance, Zainab Ahmed said in a press statement in May that the Federal Government expects that without a fiscal stimulus, the economy will contract by 4.42 percent in its best case scenario and contract by 8.9 percent in its worst-case scenario. The Minister also stated that she was hopeful that will a fiscal stimulus package in place, the Nigerian economy may contract by only 0.59 percent in 2020 but went ahead to budget assuming a 4.42 contraction in the economy in 2020.
Analysts are currently amiss as to whether the stock market recovery will be sustainable over the coming months but in the meantime, it appears that they will rather join the party than sit on the sidelines and watch no matter the risk.
