Tuesday, January 07, 2020 /3:58 PM / By WSTC Securities / Header Image By: WSTC Securities
- The International Monetary Fund
(IMF), in its most recent economic report, forecasted a 3.0% economic
growth for the world in the year 2019, a downgrade from 3.2% in its
previous report. The world economy is projected to grow at 3.4% in 2020.
The world economy growth is based on an expected slowdown of the US and
China trade dispute. Furthermore, an economy recovery in some emerging
economies, specifically in Latin America, and Middle-East, is expected to
drive world economic growth.
- Given the continued surge in
non-OPEC output on the back of rising rig efficiency as well as well-level
productivity, we expect OPEC's role as a swing producer to be tested.
Members' compliance with production quota will test the cartel's resolve
to anchor crude prices in 2020. Nevertheless, we expect the Nigerian crude
to command a premium on the back of the incoming International
Maritime Organisation (IMO) regulation 2020.
- We have a GDP forecast of 2.40%
in FY 2020, premised on, early passage and implementation of the 2020 budget,
stable crude oil production; and benign crude oil price relative to the
2020 budget benchmark of $57 per barrel.
- While we expect the stimulated
lending to the real sector by the banks to drive an increase in output,
proposed hike in VAT rate; Energy prices; and Continue delay in the
implementation of wage will constrain domestic consumption.
- Although the FG approved an
estimated revenue of N8.42trn, on the assumption of improved
earnings (mostly from efforts and policies of FG to drive revenue), we
expect a 75% revenue performance in FY'20. In our view, we believe that
the revenue estimates of the FG is too optimistic. Consequently, we expect
to see increased levels of borrowing in the foreign and domestic markets
(including monetary financing by the CBN).
- A critical economic challenge
in 2020 would be how to address the declining foreign direct investments
due to its impact on employment and output growth. A major way to improve
the current FDI trend is to implement economic reforms such as the power
sector reform, Petroleum Industry Governance Bill (PIGB), revenue reforms;
and significant investment in infrastructure.
- Although we are not optimistic
about the implementation of many of the reforms, we yet believe that a
significant investment will be made in key infrastructure in 2020, on the
back of improved revenue and improved overall budget implementation
especially as the 2020 budget is expected to run a full 12-month fiscal
- Given the low yield
environment, we expect:
- Increased borrowing activities,
particularly by the corporates.
- Lower funding cost for banks
and corporates, increased investment, and a boost to the bottom-line.
- But the big question for us in
respect to the curve momentum is how sustainable and for how long?
- While we believe that a lower
yield bodes well for business investment and the labour market, we are
biased to fade optimism on the CBN heterodox policy on the following
- Monetary policy rate at 13.50%
amid the dovish bias of systematic banks speaks to system fragilities.
- Faster-than-expected depletion
of foreign reserves and current account deficit for three consecutive
quarters in 2019; and
- Higher inflation expectations
in the coming months
- The equity market had
experienced two consecutive decline of 17.81% and 14.60% in 2018 and 2019,
respectively. We expect the trend to reverse in 2020 on the back of lower
finance cost for companies, implementation of the minimum wage, and the
quick passage and the implementation of the 2020 budget.
Economy in 2020; Understanding The Past, Preparing For The Future
Economic Outlook 2020: A Different Playing Field
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Affirms Interswitch's Ratings; Outlook Remains Stable
Affirms Bank of Industry Ratings, Changes Outlook to Negative from Stable
Affirms Ratings of Nigerian Banks Following Action On The Nigerian
Changes Ratings for IHS, Seplat and DANGCEM Following Negative Rating on
- Outlook for
African Banks in 2020 Turns Negative as Operating Conditions Weaken
- A Closer
Look At Moody's Report on Nigeria's Ratings
Economic Outlook: Trade, Global Growth, and U.S. Political Shock Key Risk
Factors in Forecast
Changes Nigeria's Sovereign Ratings Outlook to Negative From Stable; Affirms
The B2 Ratings