Nigeria Outlook: Transitioning or Traversing?

Coming off its first full-year recession in 25 years, the Nigerian economy looks to have turned a corner in 2017. Momentum is positive for the rest of the year and even maintaining the status quo should see Nigeria step out of recession this year. Nonetheless, policy action taken in the rest of the year will determine the strength of the economic recovery and also shape the nature of Nigeria’s post-recovery economy. Overall, supported by a low base in 2016, the recovery in oil production and progress in the agriculture sector should lead Nigeria to 1.9% GDP growth in 2017. Furthermore, we project growth of 3.2% in 2018, an acceleration driven by the view that down-trending inflation in 2018 should ease consumer wallets, along with monetary policy, even as efforts on the fiscal and supply-side fronts begin to properly bear fruit after the usual lag.                                        

Capital market performance would be steered by economic performance and the fixed income and equity markets could continue to chart contrasting paths. We expect sticky inflation and tight monetary policy to pressure yields for the rest of the year. Furthermore, with the CBN expected to persist with its aggressive liquidity management in the near-term, we do not anticipate yield curve normalization until 2018. Meanwhile, we foresee a very strong close for the NSE All-Share Index in 2017; within a range of +47% and +53% (Ytd: +33%; 2016: -6%). Equity market performance should be bolstered by stability in the FX market, an improving macroeconomic picture, and increased Pension Fund Administrator participation by the end of the year.