Macroeconomic Report & Economic Updates

The market indices at the Nigerian Stock Exchange (NSE) closed downward in the trading week ended 7th February, 2020. The bearish market recorded a decline in the All-Share Index (ASI) and market capitalization index by 2.69% and 1.61%, closing at 28,067.09 points and N14.618 trillion respectively1. All other market indices depreciated with the exception of the NSE Insurance and NSE Alternative Securities Market (ASeM) Index. The worst hit were the NSE Industrial Good Index and NSE-Meristem Value Index which declined by 4.07% and 3.94% respectively. Significant losses were recorded in both medium and large capitalized stocks such as MTN Nigeria and Nestle Nigeria. Given the global economic slowdown due to the coronavirus outbreak as well as banks reluctance in lending to the real sector, the NSE market is expected to continue on a downward trend. While investors are advised to take advantage of the lower price of equities by purchasing shares of listed companies, the Securities Exchange Commission should adopt more robust and strong regulations, specifically the recapitalization of capital market operators. This will strengthen the resilience of operators and ensure that Nigeria’s capital market is globally competitive. 

The manufacturing Purchasing Managers’ Index (PMI) declined in January to 59.2, indicating a 2.63% fall from the month of December¹. The slowdown in sectoral expansion was driven by a decline in the non-metallic mineral products, printing and related support activities. Similarly, slower growth was also observed in the non-manufacturing PMI which fell to 59.6, a 5% decline from the preceding month. In the same vein, the Confidence Index (CI) in the month of January which indicates the respondent’s level of optimism on the overall macroeconomy tapered at 28.3 index points. However, the outlook for February is more optimistic at 61.4 index points and is driven mainly by prospects in the service and industrial sectors². Going forward, we expect that the drop in the PMI will be reversed, at least minimally, as banks continue to lend to the real sector. However, the extent to which the increment will be sustained will depend on inflation levels as well as job creation growth rate in the short to medium-term.

Consumer prices for the month of December 2019 increased by 0.13 percentage points from the preceding month which stood at 11.85% ¹. This rate was 0.54% percentage points higher than December 2018. The rise in inflation was driven by a rise across all components, with the core sub-index growing by 0.34% to 9.33% and food sub-index by 0.19% to 14.67% over a month. The rise in inflation was driven in part by an increase in access to credit, as indicated in the Central Bank of Nigeria Credit Condition Survey. The survey conducted notes that there was an increase in supply of secured loans to households which was expected to increase in Q1 2020 as well as a rise in overall credit supply to the corporate sector². Inflation is expected to rise in the coming months given that the closure of the Nigeria-Benin border has driven food prices upwards resulting in cost-push inflation. In addition, the CBN’s directive to commercial banks to give out 60% of their deposits as loans to the real sector could potentially lead to demand-pull inflation. Given that food inflation is at the core of the rising inflation, initiatives should be put in place by both state and non-state actors to increase the productivity of farmers in order to transition farmers from smallholder to large-scale farming. 

Consumer prices for the month of December 2019 increased by 0.13 percentage points from the preceding month which stood at 11.85% 1. As such, inflation has increased for four consecutive months and the current rate is 0.54% percentage points higher than the inflation rate in December 2018. The rise in inflation was driven by a rise across all components, with the core sub-index growing by 0.34% to 9.33% and food sub-index by 0.19% to 14.67% over a month. The rising inflation is underscored by an increase in access to credit, as indicated in the Central Bank of Nigeria Credit Condition Survey. The survey conducted notes that there was an increase in supply of secured loans to households which was expected to increase in Q1 2020 as well as a rise in overall credit supply to the corporate sector2. In addition, the closure of the Nigeria-Benin border is likely to have driven food prices up due to a reduced supply of staple foods including rice and frozen food. Going forward, we expect a continuous rise in inflation as government directives to close the border and increase lending to the private sector are in effect

Recently, oil price surpassed US$70 per barrel due to the heightened threat to energy facilities in the Middle East. As the tension between the United States and Iran increases with the US threatening to attack Iran’s oil installations, there has been a significant rise in oil prices from US$64 to US$72 between December 2019 and January 20203. Given that Nigeria’s oil price benchmark for the 2020 budget is US$57 per barrel, there are likely to be significant gains into the Excess Crude Account in the first quarter. Although the government will benefit from the rise in oil prices in the form of increased oil revenue and foreign exchange reserves, the cost of petrol subsidy will also increase. In order to take advantage of the price increase, the government should ramp up local production and begin the process of fuel subsidy removal.