Nigeria will endure an economic contraction in 2016 as external and domestic challenges, exacerbated by a series of controversial monetary and fiscal policy developments, have led to a fall in manufacturing activity, declining oil production, a delayed implementation of an expansionary budget and reduced inflows of investment. We believe that the economy bottomed out in the second quarter of the year. However, despite some limited improvement ahead, any positive growth over the next two quarters will not be sufficient to offset the poor H1, and we forecast a 0.8% real contraction this year as a result.
In 2016, Nigeria's current account deficit will be the widest recorded since 1998 according to our forecasts, as the country struggles with a slump in global oil prices exacerbated by plunging oil output. Continued pipeline attacks by the Niger Delta Avengers have led our Oil & Gas team to sharply reduce its oil production forecasts, such that they now anticipate output of 1.70mn barrels per day (b/d) in 2016, down from our original target of 2.30mn b/d.
The Central Bank of Nigeria will enact a further 200 basis points of hikes over the next six months in a bid to encourage a return ininternational investment. High structurally driven inflation will keep real interest rates negative, but the tighter monetary policy will be a strong signal to investors.
The next Nigerian presidential elections are not due for another three years, but we already find it increasingly unlikely that incumbent president Muhammadu Buhari will serve a second term. Whether he runs and is defeated by the candidate for a re-invigorated People's Democratic Party (PDP), is pushed out of the running by other members of his All Progressives Progress (APC) over concerns over his viability as a presidential candidate, or, as rumours are already suggesting, will simply choose to not contend for the presidency once more, we do not expect that Buhari will remain president following the 2019 elections. His popularity has faded rapidly since coming to power, with an April poll putting his approval rating at just 31.7%, down from over 60% when the poll began in December 2015.
While we believe that security risks Nigeria faces on a number of fronts will eventually be contained, if the situation significantly deteriorates into a more intense level of conflict, this would potentially affect investment, exports, and growth.
Power sector reforms are crucial for long-term productivity gains. If these are slowed or stalled, this would lead to lower long-term trend growth than we currently expect.
|e/f = BMI estimate/forecast. Source: National Sources|
|Real GDP growth, % y-o-y||5.9||2.8||-0.8||4.7|
|Nominal GDP, USDbn||545.8||481.2||356.5||368.3|
|Consumer price inflation, % y-o-y, eop||8.0||9.6||18.5||13.0|
|Exchange rate NGN/USD, eop||183.48||199.30||295.00||310.00|
|Budget balance, % of GDP||-1.1||-1.5||-2.8||-2.2|
|Current account balance, % of GDP||0.2||-3.2||-4.3||-3.2|
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