January 22, 2021 / 10:56 PM / By FDC/ Header Image Credit: FDC
2021 is already running away but the level of uncertainty remains elevated. The known unknowns are still relatively high. The Nigerian economy is expected to recover mainly in the second half with positive growth of 1-1.2% but the problem is three words... Inflation! Inflation!! Inflation!!!
How does Nigeria get rid of this cankerworm? Interest rates are 18% below food inflation, Diaspora remittances are being exchanged at multiple rates and government debt is still a burden. The reality is that the road to recovery will be hard and uneven while the pace will depend on the effectiveness of fiscal, monetary and trade policies. In spite of the economic recovery, the resolution of multidimensional poverty remains the major challenge.
The great news is that oil prices are stable above $50, which is 25% above the 2021 budget benchmark of $40pb. This should support the reflationary budget of N13.59trn narrow the fiscal deficit, and reduce external imbalances.
Will the 50% return witnessed in the Nigerian equities market in 2020 repeat itself in 2021? You can bet your bottom dollar the answer is NO. You will be lucky to come back from Broad Street with your shirt on. The looming shift to higher interest rates will increase yields on fixed income instruments and lower the demand for equities. That inverse relationship is a well-known economic principle.
In this Year Ahead report styled "Inflection, Reflation & Destitution", the FDC Think-Tank gives a glimpse into the rest of 2021 with some economic forecasts on the recovery.