Glimmer Of Hope - Macro and Markets: 2018 Review and 2019 Outlook


Friday, January 25, 2018 03:21 PM / Investment-One Research

Global growth in 2019 is expected to remain under pressure due to the geopolitical tensions, particularly the US-China trade war, policy normalization in the United States and the current divorce deal between Europe and the U.K in conjunction with other country specific factors in most emerging and frontier markets. However, with a projection for relatively stable energy prices, a weakened dollar and more accommodative monetary policies, therein lies a glimmer of hope.

Specifically, in Nigeria, despite the growth of 1.76% y/y recorded at the end of 9 months 2018, we believe issues such as the delay of the 2018 budget’s approval and historically uninspiring levels of implementation, herdsmen attack, insecurity in the North, infrastructural deficit, high interest rate and contagion effect of a potential slowdown in global growth may continue to limit Nigeria’s GDP growth in 2019. As such, we may not see the economy growing at 3.01% as targeted by the Federal Government. We only expect the economy to grow by 2.30% which is in line with the International Monetary Fund‘s (IMF) projection but above World Bank’s estimate of 2.20% in 2019.

Additionally, as the high base effect of 2017 waned off mid-year 2018, the rate of increase in headline inflation picked up following seven months of disinflation with the direction of inflation being driven by the Food Sub Index. Going forward, with the 2019 elections close at hand, we expect that the y/y movement in price levels may continue to accelerate up until H2 2019, where we might begin to see a moderation in consumer prices. However, we highlight that 2019 may prove to be a more difficult year, as the year is gravid with inflationary pressures over the second half where certain price adjustments are likely to occur for fuel, electricity and the exchange rate.

Elsewhere on the fiscal front, 2018 continued to showcase the fiscal fragilities of the Nigerian economy. With the budget and implementation issues highlighted above, we project a less than inspiring year for government expenditure in 2019. The country’s  abysmally low tax to GDP ratio coupled with oil revenue concerns is set to exacerbate the nation’s funding dilemma amidst lofty budget expenditure targets.

With the upcoming elections clouding certainty, we expect foreign investors to remain cautious in most of H1 2019. However, we might see renewed interests in the case of a peaceful election.  Nonetheless, we remain skeptical on foreign inflows into Nigeria as the lack thereof would impact the fixed income market by driving yields higher.

Despite foreign investors’ exiting the nation’s money and capital markets in 2018, following the risk-off sentiments towards emerging and frontier markets, the Naira maintained its relative stability against major currencies as the CBN took to its ammunition (FX reserves) to defend the domestic currency. We expect the Naira to remain relatively stable in the early part of 2019 as FX reserves remain strong and CBN’s policy of currency stability persists. We however highlight the possibility of Naira devaluation in the latter part of the year especially if the on-going pressure on oil prices persists.

Finally, the local bourse came under pressure in 2018, similar to most emerging and frontier markets, despite an impressive start at the early part of the year. The downward pressure was driven by external factors highlighted above and uncertainty surrounding the nation’s forthcoming 2019 elections. However, we anticipate that the equities market may remain pressured as we approach the 2019 elections after which we may see a rebound in market performance on the assumption that the electioneering activities pass on well. The rebound in performance, however, may be dependent on who emerges the winner of the elections coupled with the events obtainable in the global space at the time.


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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