Additional Expansionary Policies Required for Inclusive Growth


Thursday June 07, 2018/02:40PM / FSDH Research  

Domestic Scene: 

The recovery path of Nigeria’s economy decelerated in Q1 2018. FSDH Research however observed steady recoveries recorded in both the manufacturing, and information and communication sectors. Agriculture recorded the lowest growth rate since Q1 2016 

Despite the recovery in some sectors, FSDH Research notes that the growth is still very fragile. Our analysis shows that the labour intensive sectors of the economy, such as real estate, construction and trade contracted in Q1 2018. Thus, additional expansionary policies are required for inclusive growth 

According to data from the National Bureau of Statistics (NBS), the real Gross Domestic Product (GDP) grew by 1.95% in Q1 2018, compared with the growth rate of 2.11% recorded in Q4 2017 

A further analysis of the growth pattern in Q1 2018 shows that the major drivers of the recovery are within the mining and quarrying, agricultural, financial and insurance, and manufacturing sectors, with weighted growth contributions of 1.44%, 0.65%, 0.47% and 0.34% respectively 

Looking at the recovery path in Q1 2018, FSDH Research has revised the GDP growth forecast for 2018 to 2.78%, down from our previous forecast of 3.16% 

The expected growth in government spending in the second half of the year, once the 2018 budget has been signed into law, should increase economic activities, with positive impacts on the income of households and businesses 

The Nigeria National Assembly (NASS) passed the 2018 Budget of N9.12trn in May 2018. The crude oil benchmark and expenditure were increased from the initial budget that the executive arm of government sent to the NASS, leading to a drop in the budget deficit to N1.95trn 

FSDH Research estimates that about N1.05trn will be sourced from the domestic market through the FGN Bond market. This will place upward pressure on the yields on FGN Bonds

FSDH Research observes that there is no provision for Premium Motor Spirit (PMS) subsidy in the 2018 Budget. The budget deficit will increase when the PMS subsidy is factored in. We expect the FGN to finance the deficit through issuance of bonds (local and foreign), leading to higher yields 

The Purchasing Managers’ Index (PMI) published by the Central Bank of Nigeria (CBN) for the month of May 2018 shows an expansion. However, the PMI grew at a slower rate when compared with the expansion in April 

FSDH Research expects the positive domestic and external environment to further lead to external reserves accretion in the short-term and this development should provide further stability for the foreign exchange rate 

FSDH Research forecasts a further drop in the inflation rate to 11.50% in May 2018. We expect the downward trend in the inflation rate to continue in the short-term  

The outlook for the equity market remains positive. Both economic and financial developments support recovery in the equity market 

Investors should take strategic positioning in the stocks that declare interim dividends. Some stocks in the consumer goods, building materials, petroleum marketing and banking sectors are attractive at their current prices.

International Scene: 

The Organization of the Petroleum Exporting Countries (OPEC) left unchanged its global growth forecast at 3.8% for 2018 in its monthly report for May 2018 

The Federal Open Market Committee (FOMC) of the United States (US) Federal Reserve (The Fed) maintained its anchor interest rate in May 2018. There are expectations that it may raise the rate when it meets in June 2018.


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