24 April 2019 : The outlook for global economic growth in 2019 remains fragile, with both Bretton Woods institutions reviewing downwards their expectations for global growth for FY’19 (IMF- 3.3% from 3.5% and the World Bank- 2.9% from 3.0%). In FY’19, global growth could come under more pressure, stemming from continued trade and boundary disputes, heightened commodity price volatility and rising market concentration. Despite the recent recoveries in developed economies (notably the U.S., Japan and the United Kingdom) over the last 2 years, growth has generally trended downward since the mid-2000s. Analysts attribute this long-term trend to aging workforces and slower productivity. 

In Q1’19 analysts observed a gradual reversal from monetary policy normalization by Central Banks in developed markets, occasioned by the recent weaker global growth expectations. Analysts recall that the United States Federal Reserve (the Fed) raised rates 4 times in 2018 on the back of improved economic performance. However, recent economic data has induced the U.S. regulator to hold off further rate hikes in 2019, in tandem with the European Central Bank’s (ECB) decision to resume Quantitative Easing (QE) earlier this year. These policies have largely influenced the flow of capital between developed, emerging and frontier markets over the last decade. Analysts expect continued FPI inflows into the fixed income space, to subdue yields and exert pressure on banks’ average yield on assets. 

On the domestic scene, analysts expect the sluggish start to economic activity in Q1’19 to gradually pick up speed and sustain momentum in H2’19, driven by key sectoral reforms in Agriculture and Power. With the uncertainty of elections laid to rest, analysts expect fiscal policy to gradually loosen up towards the tail end of Q2’19, in a bid to improve on budget implementation, albeit with emphasis on recurrent expenditure. However, history has shown that the deficit in budget revenue has an adverse effect on capital expenditure and ultimately real sector growth. 

Real GDP growth picked up in Q4’18, advancing 27bps y/y to 2.38% from 2.11% in Q4’17. Nigeria’s real GDP advanced by 1.9% y/y in FY’18, NBS GDP figures reveal that the main contributors to economic activity during the year were crop production (18.9%), trade (17.2%), crude petroleum & natural gas (10.5%), telecommunications (7.6%) and real estate (6.8%). These sectors contributed 61.0% cumulatively to the Nigerian economy. Banks, however, have only extended 4.0% of their loan book to the Agricultural sector, 7.1% to trade, 4.1% to real estate, and 31.3% to the oil & gas sector. In analyst's view, banks could benefit significantly by increasing credit to the Agriculture and Real estate sectors amid government reforms to unlock the value chain.

Reporting for EasyKobo on Wednesday , 24 April 2019 in Lagos, Nigeria

Source: Usoro Essien and Joshua Odebisi from Vetiva Capital Management Limited