Experts express cautious optimism on growth in H2

While delays in policy formulation and implementation might have increased Nigerian economy’s vulnerabilities to shock, especially in the first half of the year, analysts have expressed optimism on possible growth in the second half of 2016.

According to analysts at United Capital, despite the challenges presented in the first half of the year, there is still a silver lining for growth in the remaining part of 2016, and they urge investors not to count Nigeria out just yet.

Although the experts noted that the influence of monetary policy on the direction of foreign investment yields would remain in play for the rest of the year, the experts noted that the apex bank may need to maintain its hawkish monetary policy posture over the period, with inflationary pressure set to remain obstinate.

Specifically, the analysts noted that while the Buhari-led administration made some progress in H1 on two key mandates – tackling insecurity and promoting an anti-graft campaign, the economic leg of his core deliverables continue to lag.

They, however, projected that the headline inflation may moderate by 2017 as the effect of a higher 2016 base will impact on the consumer price index.

In a report titled, ‘Misty Cloud on the Recovery Lane’, United Capital explains that the first half of the year saw one of the most severe shocks to economic activities that Nigeria has experienced in years, adding that the structural rigidities that plagued the non-oil sector for the better part of H1-16 are expected to tell on Q2-16 non-oil GDP while lower production volumes and depressed oil prices continue to impact oil GDP.

“While the recent liberalisation of foreign exchange policy and the clearance of demand backlog is likely to give a reprieve, we think it may take a bit of time for capacity utilisation to recover to pre-crisis level even as expected further depreciation in the currency at the interbank market is likely to present additional constraints.

“We project that headline inflation will remain firmly rooted in the double-digit territory over 2016, peaking at c.18.5%. However, a higher 2016 base effect will likely see headline inflation numbers gradually moderate over 2017”, they added.

On monetary policy, the report stated that the recent liberalisation of the foreign exchange market is likely to increase the probability of accessing international funding, albeit at a higher cost given the recent deterioration in Nigeria’s sovereign credit rating.

“The recent relaxation of CBN interventions in the market,however, appears to be a deliberate effort to preserve the external reserves as maturing forward transactions continue to create a need to part with liquidity. In the interim, we expect the CBN to continue to intervene in the market given that additional supply sources are yet to firm up.

“However, we note that the recent resumption of sales to the BDCs, which presents another case of policy summersault and may temper the intensity of CBN’s direct intervention in the market in the near term.

“From where we stand, the convergence of the interbank and parallel market rates appear not too far off, provided CBN’s intervention can be more measured while the protectionist monetary restriction on the 41 items is relaxed”, the analysts explained.