Nigeria H2 2018 Outlook - Navigating The Tide

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Thursday, August 02, 2018 /3:25PM / Cardinalstone Reseacrh

Global Economy – Trade concerns could hurt growth potential

The global economy commenced the year on an upbeat note, but uncertainties around trade war concerns have steadily soured sentiments, with the possibility of dampening global growth prospects. In addition, ongoing policy normalization in the US and other developed countries will continue to pressure emerging market economies and currencies, with potential for further capital outflows. This could lead to rate tightening and stifled growth in emerging and frontier market economies.

Nigeria Politics – Should we shiver?

Momentum is building as the 2019 general elections approach. Following a wave of political defection from the ruling All Progressive Congress (APC), the major opposition, the People’s Democratic Party (PDP), will be encouraged about potentially causing an upset in 2019. However, we think that this also depends on the calibre of candidate the PDP fields to challenge the incumbent President Muhammadu Buhari, who is widely expected to be the APC’s flagbearer. Overall, we expect that the APC will retain power in the upcoming general elections.

Nigeria Economy – Navigating the tide

Stabilizing growth is an overriding theme in the Nigerian macroeconomic terrain. With growth seemingly fragile, policy makers are racing to ensure broad-based recovery, in line with the Economic Recovery and Growth Plan (ERGP). It is widely expected that fiscal injection, in addition to political spending from pre-election activities, will stimulate economic activities that will foster growth.

However, there are concerns about the potential impact of increased spending on inflation, which has moderated steadily through the year. This, in addition to dampening impact of capital outflows on exchange rate stability has muted earlier calls for loosening of the policy rate. Hence, we expect that the Central Bank of Nigeria, will leave its benchmark rate unchanged at 14 percent through the year, while using other tools at its disposal to regulate the monetary space. This is to ensure both price and exchange rate stability, without significantly hurting prospects for growth.

The Nigerian equities market pared its gains from early 2018, reeling from profit-taking and interest rate hikes in the US. Recent developments in the political space bespeaks uncertainty and this has cast a shadow on the overall mood in the equities market. While the implementation of the recently introduced Pension Fund Administration (PFA) multi-fund structure offers a potential bright spot, we do not think the impact will be significant to buoy year-end market performance, given heightened political uncertainty.

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