Nigeria 2022 Macroeconomic Outlook - A Shot at Dawn


Thursday, December 02, 2021 / 01:50 PM / by Vetiva Research / Header Image Credit: Vetiva Research


Executive Summary

A shot at dawn 

Although the great lockdowns of 2020 are behind us, yet its offshoots are lingering, from the mutation of the virus to supply chain disruptions, the buildup in commodity prices, and higher inflationary pressures. As a result, central banks are becoming increasingly hawkish as inflation rears its head above its upper targets. While advanced economies are tapering their asset purchases, emerging economies are already hiking interest rates, setting the pace for tighter global financing conditions.


Going into 2022, a possible fourth wave of the virus could erupt if further mutations of the virus occur. Following the discovery of the Omicron variant, the likelihood of a fourth wave is becoming glaring. Although, economies are beginning to wind down their policy supports, lockdowns and restrictions could still surface from time to time to stem the pace of infections. Meanwhile, sustained commitment towards renewable energy could keep commodity prices elevated due to underinvestment in fossil fuels and increased demand for other commodities. We expect digital currencies to thrive in the coming year, as more economies take advantage of the blockchain technology.


In Sub-Saharan Africa, vaccination rates remain low amid nascent pressures from climate change and political instability. Two of our coverage countries are going to the polls in 2022 (Kenya and Angola) while Nigeria is approaching its pre-election year. Inflation is set to moderate across our coverage countries, while monetary policy stance remains hawkish.


In Nigeria, we see economic activities normalizing in 2022. As a result, we expect growth to range between 1.3% and 3.7%. Key economic activities to watch out for in 2022 include the electioneering, removal of subsidies, and floatation of the Naira. While we see inflation moderating in 2022, we expect the CBN to remain accommodative. However, external pressures could result in rate hikes. Fiscal metrics could improve in 2022 on the back of recovery in oil revenue. However, we hold a differing view on subsidies considering the electoral season. On the external scene, we see room for deprecation in both the official and parallel market. However, recoveries in the oil sector and maximization of the e-Naira could help keep the parallel market in check.


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