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Will Nigeria’s economy gather momentum during the second half of 2019?

Nigeria sees fastest first-quarter growth since 2015, driven mainly by the non-oil sector

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Will Nigeria’s economy gather momentum during the second half of 2019?
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The news that Nigeria’s economy cooled down to 2.05 per cent in the first quarter of 2019 compared to 2.38 per cent in Q4’18 has left investors wondering about the chances of growth gathering momentum during the second half of the year.

On the one hand, it’s an encouraging sign we’ve seen the fastest first-quarter growth since 2015, driven mainly by the non-oil sector which grew 2.47 per cent. On the other hand, the Oil sector shrank by 2.4 per cent, sending a worrying signal that the sector isn’t doing as well as it should be even amid rising Oil prices. 

It is becoming increasingly clear that economic growth is unlikely to reach the ambitious Economic Recovery and Growth Plan (ERGP) target of seven per cent but it may hit the Central Bank of Nigeria’s target of 2.47 per cent.

For this to happen, the growth trend in the Oil sector would need to rebound and the services sector would need to sustain its current strength. Added momentum could stem from Oil prices should they hit a bullish streak going forward, supporting the economy as the Oil trade still accounts for a handsome chunk of the nation’s foreign exchange earnings. 

There are other potential areas of growth. Regionally there is a significant development which could increase economic efficiencies and trade within Africa – the African Continental Free Trade Area (AfCFTA) which comes into effect on May 30. Although Nigeria hasn’t yet joined AfCFTA, there’s still a chance it will do so, once discussions are completed with stakeholders.

In addition to opening intra-Africa trade relations, the AfCFTA gives multi-national companies the chance to set up in one African country and be passported to another 52 countries within a common market made up of over one billion people.

Increased access to foreign expertise and investment could improve local manufacturing and processing systems while driving more growth and jobs creation. In the best-case scenario, standardised trading agreements across AfCFTA may open up trading channels which could lead to increased company sales, revenues and profits.

Nigeria sells just 12.7 per cent of its total exports to other African countries, so if the treaty is ratified, there’s scope for increased government and company revenues from a boost in trade. 

In general, there needs to be a stronger push in diversifying away from Oil reliance to other sources of sustainable growth. An important part of sustainable growth is investment sentiment and the current economic stability along with easing inflationary pressures which may lead to a more dovish Central Bank of Nigeria (CBN) monetary policy by way of interest rate cuts.

If so, a reduction in interest rates would stimulate borrowing and investment from local businesses, which in turn would support economic growth. A more robust economy plus foreign exchange reserves rising towards $45 billion would likely provide ammunition for the CBN to defend the naira.

Another factor impacting on Nigeria’s recovery is the external threat of the US-China trade negotiations which could end up pressuring Oil prices if the result is a global slowdown, meaning less demand for Oil. The USD is staying strong amid the trade tensions and should they intensify further, they will hit emerging markets where it hurts – in their currency exchanges.

This would undermine the naira while pressuring consumer spending and on top of that, falling Oil prices would likely dent government revenues. 

Looking ahead, there is scope for Nigeria’s economy to gather momentum in the second half of the year, provided some key basics of growth are kept in focus: supportive monetary policy; keeping consumer spending healthy; sustaining investor confidence; and improving economic infrastructure, particularly in the Oil sector.

Even if the risks stemming from US-China trade disputes are out of Nigeria’s hands, shoring up the domestic economy could help it weather any storms. The worst-case alternative is less attractive.

If a global slowdown is triggered due to the trade tensions, economic growth in Nigeria may follow suit, meaning the CBN will face more difficult challenges to support the naira and the wider economy through monetary policy.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central TV’s editorial stance.

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Op-Ed

Oil sensitivity set to intensify on conflicting themes

Oil markets are poised to remain highly sensitive and reactive to supply and demand side factors ahead of the OPEC meeting this month.

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Oil sensitivity set to intensify on conflicting themes | News Central TV

It has been a rollercoaster trading week for oil markets as investors tussled with conflicting fundamental themes pulling and tugging at the commodity.

Oil prices initially collapsed roughly 4 per cent mid-week thanks to an unexpected rise in U.S. crude stockpiles and a gloomy outlook for global oil demand. Bulls were later thrown a lifeline after geopolitical tensions in the Middle East rekindled concerns over potential supply shocks.

Oil markets are poised to remain highly sensitive and reactive to supply and demand side factors ahead of the OPEC meeting this month. With oil trading at depressed levels despite the recent rebound, OPEC+ may have no other choice but to extend supply cuts in an effort to prevent any further downside shocks.

Related: Nigeria foreign reserves rise in May; Gold Shines

For as long as Nigeria remains reliant on oil sales as a source of growth, the weakness in oil exposes the nation to significant downside risks. Should oil prices sink deeper into the abyss, Nigeria’s fragile recovery, exchange rate stability and improving sentiment will be under threat.

Looking at the technical picture, WTI Crude is trading marginally below $53.00 as of writing. Repeated weakness below this level is likely to encourage a decline towards $52.00 and $50.60.

Dollar steady ahead of retail sales 

dollar

The Dollar edged higher against a basket of major currencies today as trade tensions and global growth concerns supported the flight to safety.

While the Dollar is likely to remain supported by safe-haven flows amid persistent trade tensions, the question is for how long? With the Fed speculated to cut interest rates and recent economic data from the United States nothing to celebrate about, the Dollar is running on borrowed time.

Related: Nigeria’s week ahead: ECB meeting and Oil in focus

Much attention will be directed towards the latest U.S. retail sales figures on Friday which should offer insight into the health of the U.S. economy.

Should the report disappoint, the Dollar is likely to weaken as expectations mount over the Federal Reserve cutting interest rates this year.

Commodity spotlight – Gold 

Commodity spotlight – Gold

This has been a mixed trading week for Gold due to the growing sensitivity of global risk sentiment.

Related: Investors “Sell in May and Go Away” as risk aversion intensifies; Oil collapses

The precious metal has the potential to conclude the week on a positive note if the pending US retail sales report fails to hit market expectations. Looking at the technical picture, Gold is likely to test $1347 if $1324 proves to be a reliable support.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central TV’s editorial stance.

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Op-Ed

Nigeria’s week ahead: ECB meeting and Oil in focus

The week kicks off with the US ISM Manufacturing PMI for May which is projected to hit 53.0

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Nigeria week ahead: ECB meeting and Oil in focus
(File photo)

It will be another busy week for financial markets as investors grapple with trade tensions, Brexit, depressed oil prices and concerns over slowing global growth.

The week kicks off with the US ISM Manufacturing PMI for May which is projected to hit 53.0. Appetite for the Dollar is likely to take another hit if the PMI figures fail to meet market expectations.

Investors will be paying very close attention to Fed Chair Powell’s speech on Tuesday for fresh insight into the Fed’s monetary policy path. Investors will be paying very close attention towards Powell’s tone, given how concerns are rising over trade tensions potentially impacting the US economy. 

The biggest event risks this week will be the European Central Bank meeting and US jobs report on Friday. The Dollar could end up depreciating further if the US jobs report disappoints and fuels speculation over the Fed cutting interest rates this year. Naturally, this will be good news for emerging market currencies with the Naira falling into the category.

The economic calendar for Nigeria will be relatively light this week with the Stanbic IBTC Bank PMI scheduled for release on Thursday. Although the economic docket is light, external factors in the form of trade tensions, the Dollar and most importantly oil prices will impact sentiment towards the nation.

Falling oil prices are set to place the Nigerian economy in a difficult position. It is widely known that Nigeria relies heavily on crude oil exports which account for over 90% of exports earnings and over 70% of government revenues.

A sharp decline in oil prices could threaten Nigeria’s economic recovery while disrupting exchange rate stability. The potential decline in foreign exchange reserves from lower oil is likely to weaken the Naira, consequently translating to rising inflationary pressures. Consumers and businesses will feel the pain as inflationary pressures mount, while the drop in foreign reserves may complicate the Central Bank of Nigeria’s efforts to defend the Naira.

For Nigeria to insulate itself against such external risks, there needs to be a greater push on diversifying away from oil reliance to other sustainable sources of economic growth with Agriculture being one of several solutions. Elsewhere, Gold is glittering as geopolitical risk factors and concerns over slowing global growth accelerate the flight to safety.

This precious metal has turned bullish on the daily timeframe as is positioned to push higher should $1,300 prove to be reliable support. A vulnerable Dollar should inject bulls with enough inspiration to push Gold towards $1,324 in the short to medium term.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central TV’s editorial stance.

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Op-Ed

Nigeria foreign reserves rise in May; Gold Shines

Rising foreign reserves should provide the extra ammunition needed for the Central Bank of Nigeria (CBN) to defend the Naira

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Nigeria foreign reserves rise in May; Gold Shines

The Naira is set to witness further stability against the Dollar after Nigeria’s foreign exchange reserves increased by $295.12m to $45.087bn in May.

Rising foreign reserves should provide the extra ammunition needed for the Central Bank of Nigeria (CBN) to defend the Naira against a tornado of domestic and external headwinds. Nevertheless, the nation still remains exposed to oil price volatility. It is widely known that Nigeria relies heavily on crude exports which account for over 90% of exports earnings and over 70% of government revenues. The fact that oil prices are sinking towards $55 today may lead to a fall in reserves in the coming months which has the potential to impact exchange rate stability, inflation, and economic growth.

Dollar blinks and loses hold on throne 

Dollar bulls were nowhere to be found today despite risk aversion accelerating the flight to safety. Market fears over Trump’s trade disputes with Mexico and China negatively impacting the US economy are weighing on the US Dollar.  While the Greenback still remains a prime destination of safety in times of uncertainty, the question is for how long? When keeping in mind how the Fed funds futures are currently pointing to a near 70% chance of a rate cut by September, the Dollar’s upside may be limited. In regards to the technical picture, the Dollar Index has the potential to sink back towards 97.50 if a weekly close below 98.00 is achieved.

Commodity spotlight – Gold 

Gold is extended gains on Friday amid news of unexpected tariffs on Mexican goods, while ongoing US-China trade tensions continued to support safe-haven demand. 

A depreciating Dollar is supporting the upside with prices trading marginally below $1300 as of writing. Market expectations over the Fed cutting interest rates in 2019 coupled with concerns over slowing global growth are likely to ensure Gold remains buoyed moving forward. Technical traders will continue to closely observe how Gold behaves below the $1300. A solid breakout above this point should signal a move higher towards $1324.

Oil set to register first monthly loss of 2019 

Oil is on track to register its first monthly loss of 2019 with WTI Crude sinking towards $55 thanks to Trump’s newly announced tariffs on Mexico and concerns over rising US gasoline stockpiles.

It is becoming increasingly clear that oil markets remain highly reactive to news around supply and demand factors. Such market dynamics will frame the upcoming OPEC meeting in June as a pivotal event that will shape Oil’s outlook for the rest of the year. Even if OPEC+ decide to extend their supply cuts into the second half of the year, this may be overshadowed by concerns over US-China trade tensions impacting the demand for oil as global grows.

The views expressed in this piece are the author’s own and do not necessarily reflect News Central’s editorial stance.

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