Monthly Economic and Financial Market Outlook - Nigerian Economy Signals a Turnaround


Wednesday, Aug 9, 2017, 2:58 PM /FSDH

Domestic Scene
A review of the latest Purchasing Managers’ Index (PMI) report that the Central Bank of Nigeria (CBN) published for the month of July 2017 shows that the Nigerian economy is gathering more momentum for a turnaround.

The Composite Non-Manufacturing Index (CNMI) also expanded to 54.1 points in July 2017 from 52.9 points in June 2017 - We expect the inflation rate in Nigeria to drop to 15.96% in July 2017 from 16.10% in June 2017.

The accretion to the external reserves was boosted by improved oil production and relatively favourable crude oil price.

Nigeria has agreed to implement a production cap as soon as production hits 1.8mb/d. The value of the Naira strengthened in both the inter-bank and parallel foreign exchange market
At the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held on July 24-25, 2017, the committee decided to hold rates in line with our earlier expectation.

We expect the equity market to appreciate in the month of August 2017, albeit at a slower pace than the last five months due to profit taking activity Yields on fixed income securities may trend marginally lower in August 2017 because of the expectation of lower July 2017 inflation rate.

International Scene

The anticipated growth in the global economy remains on track according to the International Monetary Fund (IMF) in its July 2017 World Economic Outlook (WEO)

According to OPEC, total OPEC crude oil production from secondary sources in June was increased mostly from Libya, Nigeria, Angola, Iraq; Saudi Arabia and Iran.

Global Developments: In the countries we monitored, the prices of government bonds recorded a mixed performance in July 2017 compared with June 2017. The 7.75% February 2023 South Africa Government Bond recorded the highest month-on-month price increase of 0.93% to 99.09.

This was followed by the 8.15% June 2022 India Government Bond with an increase of 0.39% to 106.21. The 17% April 2022 Egypt Government Bond recorded the highest month-on-month price decrease of 0.32% to 95.95. This was followed by the 3.52% February 2023 China Government Bond, with a price decrease of 0.31% to 100.02. 

The India, Kenya, Russia, South Africa, China, United State (U.S), and Nigeria Bonds closed the month at positive real yields. Other bonds we monitored closed the month at negative real yields. The India Government Bond offered the most attractive real yield amongst the selected bonds in July 2017.  

The U.S economy recorded a growth of 2.6% (quarter-on-quarter) in Q2 2017, from 1.2% in Q1 2017 from the advance estimate released by the U.S Bureau of Economic Analysis (BEA).  

The growth was boosted by strong consumer spending and a rebound in government consumption while exports slowed and housing investment shrank.

Similarly, the inflation rate in the U.S increased by 1.6% in June 2017, below 1.9% in May and below market expectations of 1.7%. It is the lowest inflation rate since October 2016 due to a fall in gasoline prices. 

The Global GDP
According to the International Monetary Fund (IMF), the pickup in global growth anticipated in its April 2017 World Economic Outlook (WEO) remains on track. The IMF forecasts global economic growth at 3.5% in 2017 and 3.6% in 2018. The major drivers are the growth in global trade and industrial production, which it said remained well above 2015–16 levels despite retreating from the very strong pace registered in late 2016 and early 2017.  

It added that Purchasing Managers’ Indices (PMIs) also signal sustained strength in manufacturing and services. The report stated that the global growth forecasts are of different variants at the country level. U.S. growth projections are lower than in its April WEO, primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated.  

Growth was revised up for the Euro-area, where positive surprises to activity in late 2016 and early 2017 point to solid momentum; Japan’s growth was also revised upward. China’s growth projections have also been revised up, reflecting a strong Q1 2017 and expectations of continued fiscal support.  

The growth forecast for Nigeria was maintained at 0.8% in 2017. The IMF highlighted that the risks around the global growth forecast appear broadly balanced in the near term, but remain skewed to the downside over the medium term. On the upside, the cyclical rebound could be stronger and more sustained in Europe, where political risk has diminished.  

On the downside, advanced market valuations and very low volatility in an environment of high policy uncertainty raise the likelihood of a market correction, which could dampen growth and confidence. It added that the strong credit growth in China comes with rising downside risks to medium-term growth.  

It also hinted that monetary policy normalization in some advanced economies, notably the U.S, could trigger a tightening in global financial conditions. Other risks it identified are anti-globalisation stance and geopolitical risks. 

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