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Economy | Reviews & Outlooks

Q4 2024 Outlook in Numbers - Economic Outcomes & Thoughts

Aug 13, 2024   •   by Proshare Research   •   Source: Proshare   •   eye-icon 1079 views

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Introduction

The message of ‘renewed hope’ has continued to reverberate through the Nigerian economy in the first three quarters of 2024 under President Bola Tinubu. The reality, however, voiced a different song with lyrics deviating from hope. But in sticky to our usual approach of being data-driven, we review the performance of major macroeconomic indicators between 2023 and 2024, where we observe several moving parts. 

 

The two difficult but necessary reforms undertaken by the current administration in mid-2023: petrol subsidy removal and foreign exchange liberalisation, were expected to shift the natural order of key indicators and trigger some socio-economic benefits for the country. On the contrary, the trend of GDP growth, Debt-to-GDP, Trade figures, and FDI, among others have largely shown no inflection points while cost-related indicators, which tend to directly affect households, have responded with speed and size. Although positive, economic growth has remained below desired, suggesting a lack of capacity to expand the job market and expand business activities. More worrisome is the sky-high inflation rates, which continue to create a vicious cycle of rising input costs and household prices.   

 

Whether what lies ahead is still hope or despair is a matter for data and policy direction to guide on. The benefit of hindsight offers us the basis to estimate Q4 2024 outcomes for key indicators.

 

Outline: 

  • Growth
  • Inflation
  • Monetary Policy
  • Fiscal Policy
  • Trade and Liquidity Flows
  • Sectoral Performance
  • Nigerian Households in 2024
  • Outlook and Assumptions for the Nigerian Economy in Q4 2024

 

Growth

Nigeria’s gross domestic product (GDP) growth rates have shown the resilience of the Nigerian economy, remaining positive over the past quarters. However, growth has bucked the desired 7% rate targeted by the federal government, stalling at roughly around 3%. The slower 3% growth rate challenges the government's goal of achieving a US$1trn economy by 2030 (see Chart 1 below).

 

Chart 1:

A graph of growth and performance

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  • Decelerations in the agricultural and industrial sectors countered gains from growth in the service sector.
  • Crowding out private sector activities via tight policy rates and volatile policy conditions.
  • The agricultural sector recorded slower growth and low productivity as effective solutions to food production bottlenecks and rising food prices remain difficult.

 

Inflation

As inflation trended upward over the last few quarters, rising consumer prices bit deeper into households' real purchasing power as prices rose due to higher business costs amidst a currency slide (see Table 1 below).

Table 1:

 

Monetary Policy

The Central Bank of Nigeria (CBN) embarked on quantitative tightening; however, Inflation has defied the apex bank's hawkish approach. On the other hand, foreign exchange markets achieved unification, but strategic measures toward currency appreciation remain difficult to implement (see Table 2 below).

 

Table 2:

A screenshot of a computer

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Fiscal Policy

The government spending plan for 2024 was readjusted to accommodate an expansion by N6.20trn Naira, of which N3.2trn was reserved for capital projects while N3.00trn was to accommodate recurrent obligations due to a national minimum wage increase (see table 3 below).

 

Table 3

 

Deterioration in public finances posed a problem as the government exploited debt options to meet obligations. The country's fiscal stance pushed the nation's debt up. Higher debt, slower growth, and larger deficits remained a risk to the stability goal of the CBN (see Chart 2 below).

 

Chart 2:

 

Trade and Liquidity Flows

Global commodity prices remained high in 2024 as shocks and geopolitical tensions persisted. While the depreciation of the Naira supported exports of goods and services, the cost of imports played a major role in the high cost of production and elevated prices (see chart 3 below).

 

Chart 3:

A graph of the trade of the company

Description automatically generated with medium confidence

 

Liquidity inflows have doubled over the past quarters; however, liquidity challenges may recur as inflows remain driven by foreign portfolio investments (FPIs). Growth in foreign direct investment (FDI) flows in 2024 has marginally moved above the $94.34mn average of 2023; however, the constrained macroeconomic environment, energy crisis, infrastructural deficit and insecurity have not provided an attractive enough environment for FDI inflows (see chart 4 below)

 

Chart 4:

 

Sectoral Performance

The economy's growth sectors consist of multiple activities; however, the significant growth sectors are single-activity. At least 50% of each sector's performance remains driven by a single activity (see table 4 below).

 

Table 4:

 

Nigerian Households in 2024

Policy enactments aimed at restoring/rekindling hope amongst Nigerian households fell deeper and deeper into a cost-of-living difficulty. Inflation remained largely upward trending while the real value of household purchasing power gradually diminished, eroding over 60% despite an increase in the minimum salary to N70,000 from N30,000 (see chart 5 below)

  

Chart 5:

 

Malnutritional concerns grew stronger over the past four quarters as the affordability of basic meals became more challenging for households owing to growing food inflation and low food productivity (see chart 6 below)

 

Chart 6:

 

Outlook and Assumptions for the Nigerian Economy in Q4 2024

Macro

  • Nigeria's GDP growth will peak above 2.5% but below 3.5% in Q4 2024, driven by demand growth due to the festive period and trade surplus position.
  • Nigeria's inflation rate will lose growth momentum but remain above 35% in Q4 2024.
  • Population growth at about 2.4% to present increasing consumption demand and excess labour supply.
  • The unemployment rate should rise slowly in Q4 2024 to above 5.5%.

 

Monetary Policy

  • Monetary policy will remain tight in Q4 2024.
  • FPIs remain major drivers of capital flows.
  • FX illiquidity will persist in Q4 2024.

 

Fiscal Policy

  • Debt to GDP ratio to remain above 50% in Q4 2024 as debt obligations rise while growth stagnates.
  • Fiscal imbalance will increase as exploration of alternative funding sources yields marginal results.

 

Trade

  • Trade surplus should persist in 2024 as imports slow due to exchange rate volatility and strong exports.
  • Nigeria's oil production will rise between 1.5mbd and 1.65mbd as security and surveillance heightens.

 

Household 

  • The temporary minimum wage increase will yield a minimum real impact on house purchasing power.
  • The Misery index should stay high as unemployment and inflation persist.
  • The Heightened insecurity would keep food inflation elevated.

 

Chart 7:

 

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