The Nigerian economy is expected to grow further in the second half of 2024 largely on the back of increased production in the oil sector, analysts say.
Speaking at the 2024 mid-year economic review and outlook hosted by the Lagos Chamber of Commerce and Industry (LCCI), Bismarck Rewane, CEO of Financial Derivatives Company Limited, said there are silver linings, flickering hope for the second half (H2) of the year.
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“Oil prices averaged $83 per barrel (pb) in the first half (H1), and will remain above $80pb in H2. There is hope for improvement in the second half. In H1, the economy performed below expectations and will require a minimum growth of four percent in the next three quarters to meet the target of 3.88 percent GDP set by the Federal Government in the 2024 budget,” he said.
“The economy underperformed the expectations for H1. Economic growth in the first quarter at 2.98 percent is less than the government benchmark of 3.88 percent. Real gross domestic product (GDP) has to grow at least 4 percent in the next three quarters to meet the target,” Rewane noted.
According to the National Bureau of Statistics (NBS), Nigeria’s GDP grew by 2.98 percent in real terms in Q1 2024. This growth rate was higher than the 2.31 percent recorded in the first quarter of 2023.
Analysts at CardinalStone Research in their outlook for H2 are optimistic that the economy will expand by 3.3 percent year-on-year in 2024 compared to 2.74 percent in 2023.
“This growth will be mostly anchored on the oil sector’s performance aided largely by a low base effect and a modest increase in average oil production to 1.57Mb/d from 1.43Mb/d in 2023,” the report said.
Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shows that Nigeria’s crude oil production increased by 16.7 million barrels in the first six months of 2024. This was a 7.3 percent growth compared to last year.
However, the computation of the data from the industry regulator excluded blended and unblended condensate, which are outside the calculation of the Organisation of Petroleum Exporting Countries (OPEC).
While inflation rates are easing in the USA and China, Nigeria’s inflation rates continue to rise with no positive projection yet on when it will peak and start to ease.
The headline inflation in Nigeria rose to 34.19 percent in June 2024 from 33.95 percent in May 2024, driven by food and non-alcoholic beverages, NBS disclosed.
Food prices in June increased to 40.87 percent from 40.66 percent in May on a year-on-year basis, implying a 0.21 percent rise. The inflationary surge, particularly in food prices, poses a significant challenge to the economic well-being of Nigerians.
“We project inflation will moderate to 26.72 percent by year-end, averaging 30.96 percent for FY 2024,” analysts at CSL Stockbrokers said in an outlook report.
They added that, “In H2 we expect to see a moderation in headline inflation rates due to base effect and the decelerating impact of energy and currency pressures.
“We believe that the expected executive order for a six-month suspension of import duties on staple food items, drugs, and other essential items will further contribute to the anticipated decline in the nation’s Headline Inflation rate,” CSL said.
Similarly, analysts at Meristem Research said: “The price-moderating effect of harvest supplies, the expected reduction in FX volatility, the government’s all-season plantation scheme, distribution of farm inputs, and the AFDB’s $2.90 billion intervention and the waning impact of structural reforms should also result in a decline in the pace of growth.”
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To combat inflation, the central bank led by Olayemi Cardoso has continued to maintain its hawkish stance, hiking interest rates by a combined 750 basis points to 26.25 percent. The Central Bank of Nigeria (CBN) is dishing out inflationary targeting measures to rein in inflation to 21 percent by the end of 2024.
CSL disclosed that weak capital inflows will likely keep the Naira pressured ahead of the next MPC decision on Tuesday, prompting the board to implement a final rate hike of 50-100 basis points (bps) for the year.
However, Meristem thinks that the FX stability will largely influence the direction of monetary policy rates.
“We opine that the MPC cannot afford to implement a rate hike despite the expected decline in headline inflation (due to base effect) stating a 100bps cut in rate could result in as much as a 20-30 percent increase in the exchange rate and further stoke inflationary pressures,” Meristem said.
Cardoso in the CBN’s debut outlook entitled, ‘Macroeconomic Outlook: Price Discovery for Economic Stabilisation,’ released last Thursday, said the CBN would extend its monetary policy tightening stance to tame the rising inflation.
“To mitigate some of the risks and address existing imbalances, it is imperative to intensify monetary tightening to subdue inflation risk, sustain reforms to strengthen the foreign exchange market, and tackle security issues around the food-belt and oil installations,” he said.
