Nigerian Economy on a Recovery Path


Thursday, July 13, 2017 8:48 AM /FSDH Research

Domestic Scene
The hope that the Nigerian economy will exit the current recession has improved further as the manufacturing and non-manufacturing activities increased in the month of June 2017 despite the decrease in the monetary aggregates.

Manufacturing Purchasing Manager’s Index (PMI) in Nigeria expanded for the third consecutive month in the year 2017 to attain the highest level since March 2015. The Composite Manufacturing Index (CMI) increased to 52.9 points in June 2017 from 52.5 points in May 2017.

The Composite Non-Manufacturing Index (CNMI) also expanded to 54.2 points in June 2017 from 52.7 points in May 2017 to attain the highest level since December 2014

The growth in the monetary aggregate was below targets, as the CBN employed tools to tame high inflation rate and stabilise the foreign exchange.

We expect the inflation rate in Nigeria to drop to 15.64% in June 2017 from 16.25% in May 2017. However, the government decision on Premium Motor Spirit (PMS) price and electricity tariff still remain downside risks to the path of inflation in 2017

We do not believe there will be enough justification for the Monetary Policy Committee (MPC) of the CBN to increase interest rate when it meets on July 24-July 25, 2017

The accretion to the external reserves still significantly depends on the sustained oil production and efforts of the Organization of the Petroleum Exporting Countries (OPEC) and Russia to adhere to the agreed oil output cut till March 2018

The long-term stability of the foreign exchange rate depends on the conducive domestic business environment; particularly the sustained improvement in infrastructure

We expect the overall performance of the equity market for July 2017 to be positive, provided quoted companies report strong Q2 June 2017 results

Yields on fixed income securities may trend marginally lower in July 2017 because of the expectation of lower June 2017 inflation rate.

International Scene

The OPEC released a global growth forecast of 3.4% for 2017, from 3.1% in 2016 in its monthly report for June 2017

The OPEC asserted that the improving momentum in the global economy from Q1 2017 is expected to continue for the remainder of 2017

The increased outputs from Nigeria and Libya have had a downside pressure on oil prices in May/June 2017. Thus, OPEC is considering placing a cap on crude oil production for Nigeria and Libya. 

Global Developments
In the countries we monitored, the prices of government bonds appreciated in more countries in June 2017 than they depreciated. The 3.52% February 2023 China Government Bond recorded the highest month-on-month price increase of 0.99% to 100.34.  

This was followed by the 17% April 2022 Egypt Government Bond, with a price increase of 0.83% to 96.26. The 7.75% February 2023 South Africa Government Bond recorded the highest month-on-month price decrease of 0.76% to 98.18.  

This was followed by the 1.75% May 2023 United States (U.S) Government Bond with a decrease of 0.61% to 98.49. The India, Russia, Kenya, South Africa, China and U.S Bonds closed the month at positive real yields.  

Other bonds we monitored closed the month at negative real yields. The India Government Bond offers the most attractive real yield amongst the selected bonds in June 2017.  

The United States (U.S) economy recorded a growth of 1.4% (quarter-on-quarter) in Q1 2017 from the second estimate released by the U.S Bureau of Economic Analysis (BEA), higher than second estimate of 1.2% released earlier.  

The BEA report also showed that consumer spending and exports increased more than previously anticipated.  

On the other hand, nonresidential investment was revised lower and the slowdown from inventories was higher than initially estimated.   

The Global GDP
The Organization of the Petroleum Exporting Countries (OPEC) released a global growth forecast of 3.4% for 2017, from 3.1% in 2016 in its monthly report for June 2017.

The OPEC asserted that the improving momentum in the global economy from Q1 2017 is expected to continue for the remainder of 2017.  

However, there are downside risks from United Kingdom (UK) and potentially temporary dips in the United States (U.S) and India, which are both expected to rebound in the remainder of the year.  

The oil cartel opines that the U.S GDP is expected to grow in 2017, given the latest positive momentum in its labour market as well as in other short-term indicators.  

It added that the Euro-zone has had a strong start in 2017, and its recovery is forecast to continue. The report also indicated that China has shown strong output numbers in recent months, and despite expected deceleration, it is still expected to be close to its target growth rate of 6.5%.  

India is also expected to resume a GDP growth path after the slowdown recorded in Q1 2017. Brazil and Russia are forecast to rebound into positive territory after two years of recession, depending on the development of commodity prices and in the case of Brazil also on nearterm political developments. 

The OPEC indicated that while global economic growth is improving, some uncertainties remain.  

The uncertainties include: policy issues and monetary policy decisions, which remain particularly important in the short-term. It added that global debt levels remain high in some key economies and probably requiring further attention if interest rates continue to rise gradually, particularly in the US.  

It emphasised that sustained stability in commodity prices is critical for the current improvements in global economic growth. 

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