Nigerian Economic Midyear Outlook for 2022: Unchartered Path.

Inflation Rate Continues to Rise Unabatedly

Please follow the link “2022 Midyear Outlook: Unchartered Path” to access our economic outlook for H2 2022 report. Below are the key highlights:

  • Given the strategic strength and economic powers of Russia and Ukraine, the brunt of the ongoing conflict between the two countries is felt across the globe. With higher energy and food prices resulting in heightened inflationary pressure, the United states and Nigeria among other countries recorded 9.10% (a 40-year high) and 18.60% (a 65-month high) inflation rate respectively in June 2022. The U.S Fed raised rates three times between January 2022 to June 2022, and we expect the trend of growth in the US economy to be significantly influenced by the policy moves of the Fed.
  • While the Nigerian economy has failed to maximise the gains of crude oil windfall, we project a GDP growth of 3.30% for FY 2022, primarily driven by the ICT sector and Services sector. We are less optimistic about fiscal and monetary policies, in terms of their effectiveness in stimulating economic growth and taming inflationary pressures, respectively
  • In the financial market, we expect to see a sustained rising trend of fixed income yields, as we expect investors to appropriately price-in heightened inflationary risks. However, the extent of increase is dependent on CBN’s policies.  On an overall basis, we expect to see yields to range between 7% – 10% in the NTB market, 10% – 15% in the money market, 12% -14% in the FGN bonds market and 10% – 15% in the OMO market.
  • Consequent to our expectations of higher yields in the fixed income market, we expect to see a reversal in the equities market. Although corporate earnings could be improved in H2 2022, on the back of price increases, the opportunity costs of holding equities will rise in tandem with higher fixed income yields. We expect the equities market to decline by 10% in H2 2022.
  • Pressures in the foreign exchange market are expected to persist, amid weak inflows from the three major sources of FX inflow namely, crude oil receipts, FPI/FDI, and diaspora remittances. We expect to see a N413 – N430 band in the I & E FX window. In the parallel market, we estimate a N650-N700 exchange rate levels.
  • Given the expected investment climate,  we believe that we are in a rising interest rate environment. Therefore, we suggest that investors should typically stay short on the curve, especially investors with objectives to fund liabilities or short-term goals. However, liquid investors with a relatively long-term horizon could position in equities that are currently undervalued.

Kindly follow the link “2022 Midyear Outlook: Unchartered Path” to access our full report.

Thank you.

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