Q2 2019 Economic Outlook: Four Years With A Long Shopping List

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Tuesday, May 14, 2019  02:15PM / FBNQuest Research / Header Image Credit: Businesspost

                                               

Opportunities arising from Buhari’s re-election: Buhari Two can prove more eventful in terms of reforms than Buhari One if the executive can forge a good working relationship with the National Assembly. The gains might include the passage of petroleum industry legislation and less fractious annual budget negotiations. The rapid appointment of a new government would also be helpful.   

Unappetising growth forecasts: A limited fiscal stimulus and a higher minimum wage on the expenditure side, along with a pick-up in oil production, underpin our GDP forecasts. Growth above 3% is unlikely before 2021, given diminished household budgets.

More policy rate cuts to come: The MPC cut the policy rate in March on the grounds that price and foreign exchange stability had been achieved, opening the door to a growth stimulus. On this logic we see further cuts in the next 18 months although their impact on the real economy can be debated. The trend in FGN bond yields over the next quarter will be broadly stable. 

Good survival prospects for the official rate: We have seen strong fx convergence other than for the official rate. A preferential rate suits the authorities and there is little pressure to change tack. A second term for the CBN governor (yet to be ratified) reinforces our argument. It also points to an acceleration in development finance initiatives.  

External balance sheet in decent shape: Favourable geopolitics outweigh soft global demand as the driver of the crude oil price. This supports the balance of payments, reassures foreign investors in naira debt markets and points to a small rise in official reserves. As ever, this scenario is vulnerable to a sharp deterioration in global trade relations, the return of monetary tightening in the US and an oil price slump.


Central economic indicators

 

2017

2018

2019F

2020F

Real growth (in per cent)

0.8

1.9

2.6

2.8

CPI (in per cent; y/y Dec)

15.4

11.4

11.7

10.5

Monetary policy rate (%; year-end)

14.0

14.0

13.0

12.0

Current account/GDP (in per cent)

2.8

1.3

0.4

0.3

Bonny Light (end-period spot; US$/b)

67

52

78

72

Bonny Light (average spot; US$/b)

54

72

75

70

Official fx reserves (in US$ bn)

39

43

46

48

N/US$ (end-period)

306

307

308

308

N/US$ (average)

306

306

307

308

 

Source: CBN, NBS, Bloomberg, FBNQuest Research

 

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