In response to the COVID-19 pandemic, the FG and CBN have announced some stimulus packages aimed at easing the overall negative impact of the pandemic on businesses.
However, the quantum of the stimulus compared to the size of the Nigerian economy may mean there would only be a marginal impact.
To give perspective, the total amount of monetary support announced by both the FG and CBN is estimated at c. N5.3tn ($14.6bn), equivalent to 3.7% of GDP. However, we expect access to intervention funds to be limited to the formal sectors and big corporates.
Thus, leaving the country’s large informal sector (above 60.0% of the economy) exposed to the vagaries of the COVID-19 pandemic.
Also, given that the current crisis is supply-side heavy (restriction of movement and business shutdown), it is clear that the demand-side responses by both the fiscal and monetary authorities (liquidity injections) would not be enough to prevent an economic the contraction in the short term.
However, the palliatives and reforms that are being announced may reduce the probability of sliding into a deep recession or quicken recovery once the incidence rate of the pandemic begins to drop and the economy is fully re-opened.
Overall, the Nigerian economy may enter a technical recession by Q3-2020 (after two consecutive quarters of contraction in Q2 and Q3-2020), with a chance of early recovery by Q4-2020 or Q1-2021.
United Capital Research