Growth Prospect with Rising Uncertainties

Proshare

Tuesday, March 13, 2018 /8:20 AM /FSDH Research

Domestic Scene:

FSDH Research notes that the Nigerian economy requires additional policies to achieve sustainable growth particularly in the non-oil sector 

The Real Gross Domestic Product (GDP) grew by 0.83% in 2017, compared with the contraction of 1.58% in 2016 

FSDH Research believes the growth in the economy is still fragile as only two out of six largest sectors of the economy recorded growth in 2017 

The foreign capital inflows into Nigeria increased in 2017 compared with what was recorded in 2016. FSDH Research however notes that foreign portfolio investments dominate the capital inflows 

The Nigeria’s external trade balance improved in 2017. However, we note that crude oil dominates the total exports. Thus, an unfavourable development in the crude oil market may have adverse implications for the Nigeria’s trade position 

FSDH Research expects the inflation rate in Nigeria to drop to 14.31% in February 2018 from 15.37% in January. We believe the inflation rate is on course to drop to single digit rate around mid-year 

FSDH Research observed a slowdown in the Purchasing Managers’ Index (PMI) for the second consecutive month. Although the PMI figures are above 50 points, the slowdown may reflect the rising uncertainties in the country 

Some of the major rising uncertainties that we have identified in the economy are: The possibility of capital flight as a result of the increasing justifications for monetary policy normalisation in advanced countries. The possibility of a drop in the crude oil price at the international market. Increase in food prices as a result of the rising unrest in the food producing states in Nigeria. This may have unfavourable impacts on inflation rate. The delay in the announcement of the monetary and fiscal policies for the country 

FSDH Research expects the yields on the Nigerian Treasury Bills (NTBs) to drop further in March while the yields on the FGN Bonds should increase from the current level in the short-term. We see opportunities in the Corporate Bond Market and the Corporate Eurobond Market 

We expect the equity market to appreciate in March 2017 as investors take position in the market ahead of the earnings season. 

International Scene:
There are strong indication that the Federal Open Market Committee of the U.S Federal Reserve will increase its anchor interest rate in March. This will lead to increase in yields   

The U.S economy grew by 2.5% (quarter-on-quarter) in Q4 2017.  The inflation rate in the U.S stood at 2.1% (year-on-year) in January 2018. The Unemployment rate remained at 4.1% in February. These positive developments support rate hike. 

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