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Nigeria Unstoppable from Sliding into Recession in Q3-2020 –Report

Nigerian economy would defy all fiscal and monetary measures and slide into recession by the third-quarter of 2020 given the multiple of stresses the economy is going through.

A report titled ‘Nigeria H2 2020 Outlook Report’ released on Wednesday by United Capital Plc, said “already, domestic economic growth in Q1-2020 slowed to 1.87% and the figure for Q2 2020 is set to come in negative, despite the series of stimulus packages announced by the authorities aimed at easing the impact of the pandemic on businesses and households.”

The analysts argued that, ” questioning a global recession in 2020 is pointless. The historic lockdown experienced in first half (H1)-2020 has crippled demand and halted supply chains, hence, the key question to ask is nature of recovery.”

What could have been a flourishing year for the Nigerian economy was caught in the web of a global public health crisis which grounded domestic and external economic activities.

Notably, given that the current crisis is supply-side heavy (restriction of movement and business shutdown), it is clear that the demand-side responses by both the fiscal and monetary authorities (liquidity injections) would not be enough to prevent an economic contraction in the short term.

However, the palliatives and reforms that are being announced may reduce the probability of sliding into a deep recession or quicken recovery once the incidence rate of the pandemic begins to drop and the economy is fully re-opened.

The report added that the “Nigerian economy may enter a technical recession by Q3-2020 (after two
consecutive quarters of contraction in Q2 and Q3-2020), with a chance of early recovery by Q4-2020 or Q1-2021.
“Accordingly, we have lowered our real GDP growth forecast for 2020E from 2.3% to -2.69% in 2020. The biggest downside risk to the above projections remains the possibility of a second round of lockdown, especially if the virus continues to spread rapidly. Thus, this might delay the possibility of an early recovery or a V-shaped recovery to a more strenuous U-shaped or W-shaped recovery.

“By implication, corporate earnings will be pressured except for sectors such as healthcare, technology, and
household utilities.

“Also, our outlook for the headline inflation rate remains biased upward in H2-2020 and we expect the headline inflation rate to settle at 13.3% y/y in 2020 (Pre-COVID-19 expectation– 11.9% y/y).

On the exchange rate, we believe the odds are in favour of a further naira adjustment which may take the official rate to N410/$ – N430/$ by year-end. However, we believe the CBN will continue to defend the value of the local unit for as long as it can. Thus, concerns around further adjustment are likely to discourage large-sized FPI and FDI inflow for the rest of the year.

About Babajide Iletogun

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