FSDH Macroeconomic Outlook 2020: Accelerating Growth in the New Decade


Tuesday, February 04, 2020 01:35 PM / By FSDH Research/ Header Image Credit: FSDH 

Key Macroeconomic Indicators

  • Real GDP growth is expected to average 2.5% in 2020.
  • Average inflation rate expected in 2020 is 11.9%
  • We expect external reserves to average US$37 billion in the year. Slower FPI inflows would persist particularly in the early parts of the year, given the low interest rate environment. But, we believe that FPIs will continue to dominate total inflows in 2020.
  • The CBN is expected to continue to intervene in the foreign exchange market to ensure exchange rate stability.

Monetary Policy

  • With rising inflation and imminent inflation pressures following the land border closure and VAT increase, we expect a tight monetary environment in 2020.
  • To mop-up this excess liquidity, we believe the CBN and the MPC will adopt several monetary policy tools in 2020. In the first MPC meeting in January, the CBN increased CRR to 27.5%. This is estimated to mop up an estimated N900 billion from the system.
  • Loan-to-deposit ratio and the open market operation policies of the CBN will result in increased lending to businesses and liquidity across markets in the year.
  • The CBN will continue its FX restriction policies to limit the amount of FX outflows in the year.

Fiscal Policy

  • Expansionary fiscal policy with higher budget spending in 2020
  • VAT has been increased from 5% to 7.5% and this will lead to increased revenue, a significant portion of the revenue will go to state governments. Federal government is expected to receive N293 billion from VAT increase in 2020.
  • One key provision of the Finance Act is the exemption of Small businesses with turnover less than N25m from CIT. This will reduce burden on some SMEs and stimulate their growth.


  • With the AfCFTA coming into effect in July, gradual removal of tariffs on goods produced within Africa will influence trade outcomes:
    • Nigeria's non-oil exports to other African countries should expand significantly. Currently, exports to other African countries account for 20% of total exports.
    • Nigeria's imports from other African countries (which represents 8.5% of total imports) is also expected to increase.

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Financial Markets

  • In January 2020, the stock market has been bullish recording 10.10% return riding on the restriction of non-bank corporates and individuals from OMO primary and secondary activities.
  • The late-2019 and January 2020 rally of the equity market is largely driven by the new OMO policy of the CBN with liquidity of OMO maturities going into stocks.
  • There has also been stronger activity by pension funds  as attention moved away from fixed-income (due to declining yields) to stocks. But it is not clear that this trend will continue for the long-term and there is also the issue of FG looking at borrowing from the pension funds for infrastructure which will limit flow to stocks.
  • Given the impending liquidity following maturities of some OMO securities that would not be reinvested in the market, we anticipate fixed income yields to press downwards in 2020.
  • We anticipate more bond and commercial paper issuance in the year to take advantage of the low interest rate environment.
  • Overall, the  underlying weak macroeconomic conditions will continue to cast a shadow on the performance of the financial markets and combined with policy uncertainty this is likely to feed into continued volatility.
  • While stocks are cheap, the short-term earnings outlook is poor, markets remain volatile in the near term and we advise  investors to buy quality stocks with a long-term investment horizon.


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