Economic and Financial Markets Outlook (2018 – 2022): Strong Growth Prospect with Downside Risks…

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Executive Summary:

  • FSDH Research forecasts a Real Gross Domestic Product (GDP) growth rate of 3.16% in 2018 and 4.09% in 2019
  • Agriculture, Trade, and Mining & Quarrying sectors, with forecast growth rates of 4%, 2%, and 3.2% respectively, would lead to the growth in 2018. Other leading sectors of the economy that would contribute to the growth are: Information and Communication (I&C): 2.2%; Real Estate: 2.5%; Construction: 4% and Manufacturing: 1%
  • The growth in the equity market has created additional wealth that would stimulate effective demand in the economy. Some light manufacturing activities are also taking the place-stimulating demand for raw materials from Agriculture sector. The current crude oil price above US$65/b will encourage investment activities in the oil and gas sector. Trade sector would also benefit from the expected increase in the consumer purchasing power
  • The major opportunities in the growth projections are: Investment opportunities to increase production activity and to create value addition across most of the profitable segments of the agriculture value chain; Import substitution strategies in agro-allied industries; manufacturing sector should receive a boost following the relative stability in the foreign exchange market; FGN and state governments to sign more Public Private Partnership (PPP) deals to promote infrastructure development; a rebound in the corporate and infrastructure bond markets, and real estate sector should attract more investments as the economy improves.
  • The major downside risks to the growth are: the rising social unrest in some parts of the country may affect economic activities and lead to escalating inflation rate; external factors that can lead to a significant drop in the crude oil price may have adverse impact on the economic activities in Nigeria and possible capital flight out of Nigeria if there is excessive interest rate increase in the advanced economies. Although we do not expect any political instability in the country, electioneering activities may slow down economic activities and exert upward pressure on prices
  • The outlook for the equity market remains positive in 2018 as FSDH Research expects the macroeconomic environment in Nigeria to strengthen further. Thus we forecast a growth of 27.43% in 2017, lower than the growth of 42.30% recorded in 2017. We expect a strong rally in the first half of the year 2018. We see investment opportunities in the Banking, Building Materials and Consumer Goods sectors of the market
  • FSDH Research expects the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to ease monetary policy as inflation rate declines and exchange rate remains stable. This development will lead to growth in credits to the private sector, rebound in the activities in the corporate bond market, increase in the issuance of commercial paper and a growth in the equity market. We expect the average yields on the fixed income securities to drop substantially lower in 2018 than the levels attained in 2017.

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