Report Summary

The Macroeconomy 

Nigeria’s 2022 GDP growth came in strong, though lower than 2021 print. Oil production continued its recovery pace, as production increased. Inflation resumed its uptrend, printing higher in January 2023. The Naira was relatively flat in February 2023. 

The Financial Markets 

Fixed income yields rose during the month. Eurobond yields equally rose, maintaining the start of the year’s bearish trend. The equity market bucked the trend, as it continued its ascent. 

Our Expectations for the Coming Months 

We expect oil sector growth to turn positive soon, and the agricultural sector’s contribution to growth to increase. We expect inflation to continue its ascent, though mixed effects of drivers could swing it lower. We see the Naira remaining pressured in the near term. The CBN’s policy tightening stance could push rates higher in the fixed income space. Eurobond yields are expected to rise.

Nigeria’s Economic Woes, Crude Oil Price Performance, Ghana’s Inflation & Debt Woes, and Us Inflation & Job Numbers 

The Nigerian economy showed signs of improvement as the real economic GDP grew at a pace of 3.52% with the services sector, agriculture and industries being major contributors. As released by the National Bureau of Statistics (NBS), January Headline Inflation on the other hand skyrocketed to 21.82% YoY which represents a 0.47% increase from 21.34% YoY recorded in the previous month. The country's foreign reserves fell from $37.01 billion at the end of January to $36.68 billion. At the investors and exporters window, the Naira depreciated from ₦461.50/$ to close the month of February at ₦462.00/$. The country was also burdened with the circulation of the new Naira notes which led to destruction of bank properties and loss of lives. Following the downgrade of the government of Nigeria’s long-term foreign currency and local currency rating as well as its foreign currency senior unsecured debt rating to Caa1 by Moody, S&P retained its B-rating, revising its outlook from stable to negative, reflecting same concerns of fiscal deterioration as cited by Moody. 

Oil had its highs and lows in the month of February. The highs were hinged mainly on the optimism surrounding China’s re-opening, supported by a jump in manufacturing PMI to 52.6 last month against estimates of 50.5. Bolstering oil prices also was Russia's decision to cut production outputs by 500 million barrels per day which was later revised to up to 25% of its production output. Another event which contributed to the rise of oil prices was the unfortunate earthquake in Turkey which raised looming concerns that the incident may have caused severe damage to operations at a 1,000,000 barrel per day infrastructure. Offsetting the gains in oil were the increases in the US crude inventories up to as high as 480.2 million barrels (the highest since May 2021) and the Fed’s aggressive hawkish approach in its continuous fight in tackling inflation. In conclusion, Brent Crude closed the month at $83.89/bl compared to $84.49/bl at the end of the previous month. 

Ghana's inflation dipped slightly to 53.6% in January from 54.1% in the previous month making it the first fall since May 2021. The country, currently wallowing in a debt crisis, struggled with its domestic debt exchange program as a lot of creditors revolted against the program. However, the Ghanaian Finance Minister, Ken-Ofori Atta announced that the domestic debt exchange program closed with an 85% participation rate, a step closer to securing its $3 billion bailout from the IMF. To provide sufficient time to settle the new bonds in an efficient manner, the settlement date of exchange was rescheduled to 21st February from a previously announced 14th February. Furthermore, the country’s finance minister disclosed that the government’s planned meeting with Chinese creditors over the country’s debt restructuring has been postponed till late March 2023. According to him, this is due to the upcoming National people's Congress of China which is scheduled for early March. 

Inflation stayed higher than expected at the start of the year as rising shelter, gas and fuel prices took their toll on consumers. This reflected in the consumer price index data which recorded that inflation decelerated from 6.5% to 6.4% whereas economists surveyed by Dow Jones had been looking for a decrease to 6.2%. This is aligned with Fed Chair Jerome Powell’s expectation of a disinflationary process, just at a much slower pace. Also, the Producer Price Index rose 0.7% in January which was higher than the expected rate of 0.4%. On a 12-month basis, headline PPI increased 6%, still elevated but well off its 11.6% peak recorded in March 2022. Looking at other data, retail sales showed a 3% jump easily topping 1.9% expectations with food and drink services surging 7.2% followed by motor vehicles and parts dealers (5.9%) and furniture stores (4.4%) while the jobless claims edged lower to 194,000 which was below the Dow Jones estimates for 200,000.

The closely watched ISM manufacturing index registered a 47.7% in February 2023 from 47.4% in January, which was the lowest since May 2020, but fell short of expectations of 47.8%. Some FED officials also reiterated their stance on rates staying higher for longer.

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