Nigeria Outlook 2018 - The Silver Lining?


Friday, January 12, 2018 /06:37PM / United Capital

Global Economy in 2018: Can we hope for another cheery year?

Despite rising geopolitical tensions, growth in the global economy was robust in 2017, projected at 3.6% vs. 3.2% in 2016. More interestingly, growth is strengthening in its most synchronized form since the global financial crisis. The 45 largest economies tracked by the OECD are expected to expand in 2017 and 2018. Markets are testing new highs, interest rates are well anchored, corporate earnings are improving, commodity prices are rallying, even as consumers and businesses appear energized.

Our outlook for the global economy in 2018 is positive. While we are mindful of the risks on the horizon, especially the elevated geopolitical tensions, we expect pick-ups in global investment, trade, industrial production, business, and consumer confidence to further bolster global output level. Also, the sustained policy stimulus by the ECB and BOJ is positive for the financial market, while a stable outlook for oil prices suggests that the appetite for assets in oil-exporting economies like Nigeria is set for another bullish year.

Sub-Saharan Africa: Have we turned the corner?
Growth in Sub-Saharan Africa (SSA) economies also took a positive turn in 2017 after a sharp slowdown in 2016. This was supported by a rebound in commodity prices, favourable external conditions and consolidated reforms to tackle macroeconomic imbalances, even though developments in three of the big four markets (South Africa, Angola, and Kenya) remained largely underwhelming. Nigeria and South Africa exited recession in Q2-17 driven by rebound in oil export and Agriculture sector respectively. Looking ahead, growth is anticipated to strengthen as commodity prices firm up and domestic demand gradually gains ground. Ethiopia is likely to remain the fastest-growing economy in the region but momentum in West Africa will continue (driven by Nigeria, Ivory Coast, and Ghana) at a faster pace while the South African region will remain at 2017 level, amid elevated political uncertainty.

Nigeria: The silver lining?
Following the implementation of a decent list of pro-market policy actions in 2017, the chill of recession has given way to spring, and leading indicators have turned positive. Improvement in currency market condition, oil output level and prices have given the economy a new lease of life. Though slowly, inflation rate is moderating and investor confidence is strengthening. Going into 2018, we argue that Nigeria’s current economic resurgence, which is broadly oil output led, will not be robust enough to prompt a fast pace recovery in the absence of bold policy actions or above $80/b oil price. While the outlook on key macro variables seems positive, the economy remains vulnerable. We forecast a GDP growth of 2.5% in 2018. This, in our view, will be driven by the spill-over effect of the upsurge in oil output as observed in 2017. The growth of the Services and Manufacturing sectors remains very weak, making the overall growth outlook vulnerable to the vagaries of oil output.

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