Nigeria H2’20 Outlook – The viral shock

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The year 2020 has been a struggle. A global pandemic is in full swing and is poised to upend lives and livelihoods, obliterating any optimism for growth. In addition to disruption to social interaction, the outbreak is saddled with economic consequences in both the short and long run.

The economic damages associated with the pandemic are already kicking in, particularly in developed economies, with unprecedented momentum and severity. The sharp drop in economic activity, the collapse of trade and a surge in unemployment to record levels are indications of what is to come, should the pandemic persist.

Nigeria H2'20 Outlook - The viral shock - Brand Spur

This has called for concerted efforts by both fiscal and monetary authorities to limit some of the damage that could come with the pandemic.

With monetary policy limited in its capacity to mitigate the negative impact of the pandemic, fiscal policy is now in the spotlight to limit the rate of infection and also support consumption levels through financial and non-financial palliatives. Advanced economies, however, seem better positioned to embark on expansionary spending at this time.

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For developing economies, they were already mired in economic crisis before the coronavirus outbreak but now face the triple hit from lockdowns at home, collapsing foreign demand for their exports, and the reversal of foreign capital.

The economic pain from the virus could be especially severe in developing economies where swaths of the population do informal jobs for meagre pay without much of a social safety net.

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Nigeria, who has been managing the debt accumulation narrative for some time, maybe pushed to its limits as a sharp drop in revenues coincides with expansionary spending. With about 60% of its GDP attributable to consumer spending, lockdowns may also have a gnashing effect on the country’s aggregate output. This creates a sombre expectation of things to come.

However, it is not all doom and gloom as the oil and telecommunications sectors hold some promise. The seemingly low rate of infections could also give the country an investment advantage – with respect to portfolio flows – among yield chasing investors.

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Read Also:  Nigeria Outlook H2 2020: Up in the Air

The reliance on transient flows will, however, continue to generate liquidity concerns in the FX market and limit the firming of the naira exchange rate, but the risk of a long run FX insolvency remains low.

Against the backdrop of the pandemic, a lot of uncertainty still persists and the economic outlook is still subject to significant downside risks. Should there be a second wave of the coronavirus outbreak, with restriction measures reintroduced and economic recovery delayed, the economic performance could be a lot more bearish than anticipated.

Debt service obligations may become suffocating and culminate in a global financial crisis through a contagion effect. Therefore, the speed and severity of the pandemic remain a critical piece of the global and domestic economic puzzle.

Download the Nigeria H2’20 Outlook – The viral shock report here

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