nigeria’s-economy-seen-shrinking-to-1.2%-on-cash-crunch-–-fdc

The Financial Derivatives Company (FDC) predicts that Nigeria’s GDP will decline to 1.2 percent in the first three months of 2023 compared to 3.52 percent in Q4 2022.

The financial institution said in its monthly economic update published May 19 that the forecasted decline in Nigeria’s Q1 GDP will largely be tied to the effect of the cash crunch, which stifled aggregate demand.

“Most of the productive sectors are likely to perform sub-optimally, especially the agriculture and manufacturing sectors,” FDC said.

FDC stated that inflation is expected to continue its positive trend in April due to the confluence of higher aggregate demand (Easter and Ramadan celebrations) and supply shortages (planting season effect).

It added that sustained pricing pressures will be one of the major considerations at the MPC meeting this month.

“The MPC is likely to go with the flow, increasing the monetary policy rate by 25 basis points to 18.25 percent per annum,” it said.

Read also: Why banking sector assets grew by 25.34% in 1year – MPC members

“While the US Fed has signalled a possible halt in interest rate hikes due to slowing inflation and banking system crisis, the Nigerian MPC is likely to remain hawkish for a longer period as inflation remains stubbornly high.”

FDC added that CBN’s tight monetary policy will keep interest rates elevated, serving as an incentive for investors to rebalance their portfolios in favor of fixed-income securities.

“Hence, the stock market will most likely sustain its bearish performance,” FDC said.

The financial institution said oil prices are likely to increase in the near term due to low US crude inventory, improved Chinese demand and a possible shift towards investment in commodities as the Fed signals a hold in rate hikes.

“The rise in the country’s oil rig count suggests a possible increase in domestic oil production in the coming month,” it said.

FDC added that higher oil proceeds are positive for Nigeria’s fiscal and external buffers.

About Author

Related Post

Leave a Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

× How can I help you?