Quarterly Economic Update Q3 2022: Subdued Growth Outlook Amid Tightening Financial Market Condition

Inflation Rate Continues to Rise Unabatedly

Global Markets

Globally, the third quarter of 2022 was characterised by policy rate hike to multi-year highs, sticky consumer prices, weak manufacturing sentiments, gloomy economic outlook, and steep losses for equity investors. In the United States, Q2 2022 real GDP contracted for the second successive quarter to 0.90% year-on-year after a 1.60% year-on-year decline in Q1 2022 according to the US Bureau of Economic Analysis (BEA). The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment . We attribute the negative growth to persistently high inflation and an aggressive financial market conditions.

Domestic Economy

The National Bureau of Statistics released the Q2 2022 GDP numbers on August 26, 2022. According to the data, the Nigerian economy grew by 3.54% YoY in Q2 2022 (Q1 2022: 3.11% YoY). The growth was driven by a moderation in the decline of the Oil sector output rather than a broad-based output growth across the key sectors. Notably, the GDP growth in Q2 2022 was lower than the performance in Q1 2022.


Headline Inflation sustained its upward trend in Q3 2022, driven by higher energy prices and currency depreciation. Based on the most recent data by the NBS, the Headline Inflation was 20.52% as of August 2022, up from 18.60% as of Q3 2022 open. We estimate a 21.25% inflation rate in September 2022.

Equities market

The equities market closed the third quarter on a negative note (-5.40%) following positive closes in the previous two quarters (Q1 2022: +9.55%, Q2 2022: +10.33%). The weak market sentiment in Q3 2022 was hinged on weak macro conditions, specifically relating to inflation and foreign exchange management. Most relevantly, equity investors reacted to the reversal in the direction of fixed income yields. In May 2022, the monetary policy authorities announced a rate hike for the first time in two years. Consequent to the policy shift, yields across the fixed income market responded and that gave rise to higher opportunity costs of holding equities.


Fixed Income Market

In the continued efforts to rein-in inflationary pressure, we expect the committee to sustain its aggressive tightening. Therefore, we see yields trending upwards for the rest of the year.

Equities Market

We do not expect to see any change from the current trend. The bearish trend will most likely persist due to a high-interest-rate environment without a corresponding economic growth. Nonetheless, we believe that the market selloffs provide an entry opportunity for investors with a long investment horizon. These opportunities are fundamentally strong stocks with high (quality) earnings yield and dividend yields.

Foreign Exchange Market

The demand pressures in the foreign exchange market is expected to persist till the rest of the year, while dollar supply will likely remain weak due to underlying constraints including subsidy outflows, weak diaspora remittances, and weak foreign inflows. We also do not see any policy that could materially upturn the current trend in the Nigerian foreign exchange market.

Please follow the link “Subdued Growth Outlook Amid Tightening Financial Market Condition” to view the report.

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