Nigeria will experience a slow growth in this financial year as the economy will be largely impacted by oil output and other factors.
Sigma Pensions Limited disclosed this in its report on the outlook for the 2020 financial period.
Part of the report read, “We expect the Nigerian economy to remain on the path of slow recovery in 2020 largely helped by higher oil output, which will help mask the negative impact of tax increases on consumption spending.”
On account of new oil production from the Egina oil field, the report expected to see oil sector growth remaining positive.
It predicted that Nigeria would likely come under pressure from OPEC members to comply with agreed output reduction quotas (following significant under-compliance in 2019).
This might cap upside to oil output which it expected to average 2.1mbpd this year.
In the non-oil sector, the report expected improvement in fiscal spending as well as implementation of the minimum wage increases to support economic activities.
However, it added, these gains were likely to be muted by the impact of tax measures (increased VAT and stamp duties), border closures and higher electricity tariffs on consumer disposable incomes.
It stated, “In all, we expect improvements in economic growth to be marginal and outlook for 2020 real GDP growth in the region of 2.5 per cent.
“Across other macroeconomic variables, we think imbalances in the external sector where a deficit has materialised will place downward pressure on the exchange rate.”
In this aspect, it noted that the Central Bank of Nigeria had guided two devaluation triggers: a decline in oil prices below $50/bbl and/or a drop in FX reserve levels below $30bn, which could drive a move in the peg to N400/$.
It stated, “However, we think the CBN will look to hold off any devaluation in the near term and envisage the re-introduction of FX curbs to manage USD demand alongside measures to attract portfolio flows.
“For inflation, we think the environment speaks to further uptick and estimate that headline inflation will average 13.2 per cent over 2020 (2019: 11.4 per cent).
Overall, it stated that the investment landscape this year would be shaped by some factors which included “a largely favourable global economic environment and relaxed global monetary policy; a supportive oil price picture in the first half of the year.”
Others are greater impetus for implementation of capital budget as fiscal revenues improve; concerns regarding FX reserves and exchange rate outlook; and potential inflationary pressures from increases to tax and electricity tariffs.
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