Executive Summary:
- The short-term outlook of the global economy does not support strong growth in the crude oil price. This has implications for crude oil exporting countries like Nigeria.
- The crude oil production cut of the Organization of the Petroleum Exporting Countries (OPEC) may reduce the FGN’s revenue if crude oil price does not increase to compensate for the output cut. This will increase fiscal deficit and put pressure on interest rates.
- Most crude oil price forecasts indicate that the price will be lower in 2019 than 2018. A significant decline in the crude oil price will have negative fiscal and monetary implications for the Nigerian economy.
- FSDH Research expects most of the Central Banks in advanced countries to increase interest rates in 2019. The implications of hike in interest rates include rising global yields, monetary policy challenges in developing countries, pressure on the foreign currency and the possible capital reversal from emerging markets.
- FSDH Research estimates Nigeria’s Gross Domestic Product (GDP) growth rate of 1.94% for 2018 and forecasts GDP growth rate of 2.48% for 2019. These growth rates are lower than the Nigerian population growth rate.
- Nigerian policymakers must implement policies that will diversify the Nigerian economy, create sustainable foreign exchange stability, and assist in lifting aggregate demand in the domestic economy.
- We expect the Federal Government of Nigeria (FGN) and state governments to sign more Public Private Partnership (PPP) deals to promote infrastructure development.
- FSDH Research believes few factors support stability in the value of the Naira at the current level. We believe the currency may depreciate toward N390/US$ in 2019.
- FSDH Research expects the Nigerian public debt figure to increase in the medium term. The debt service to revenue ratio will be higher than what was projected by the FGN because of weak revenue outlook. We expect the FGN to borrow more money from the domestic market in 2019 than in the external market.
- FSDH Research expects the inflation rate to remain in double digits in 2019 through 2021. Price adjustments to critical prices such as Premium Motor Spirit (PMS) pump price and electricity tariff will increase consumer prices.
- FSDH Research notes that the assumptions of the FGN 2019-2021 Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP) need to be adjusted to reflect realities. The expected average crude oil price and production are aggressive, while the expected average exchange rate is conservative.
- FSDH Research expects the average yields on fixed income securities to increase in 2019 more than in 2018.
- Corporates may borrow money from the short-end of the market through Commercial Papers more than the long-end of the market through bonds in 2019.
- FSDH Research expects the Monetary Policy Committee (MPC) to maintain tight monetary policy stance in order to maintain price stability. However, it may provide some key sectors of the economy with palliative measures to boost growth.
- FSDH Research expects the equity market to recover marginally in 2019. We expect a growth of about 10% in the NSE ASI for the year.
