Analysts see higher oil output, GDP, external reserves in 2018
Five economists polled in a BusinessDay survey expect the Nigerian economy to expand an average of 1.5 percent in 2018, while tipping external reserves to slightly surpass current levels even as they predict a cut in interest rates by two percentage points.
Yvonne Mhango, sub-Saharan Africa chief economist at Moscow-based investment bank, Renaissance Capital, sees the naira/dollar exchange rate at N332 per dollar by year-end and averaging N353 per dollar in 2018.
The naira exchanged for N359 per dollar on the Investors and Exporters window, Wednesday, Nov. 22, according to data provided by trading platform, FMDQ.
The CBN official rate has tightly hovered around N306 per dollar for nearly six months now, and was unchanged at N305.9 on Wednesday.
Mhango also expects the Monetary Policy Committee to lower interest rate by 200 basis points to 12 percent in 2018 from 14 percent currently.
At their last meeting for 2017, the MPC voted against a premature rate cut, holding interest rate at a record high 14 percent for the eight straight meeting since July 2016 in a bid to combat sticky inflation.
Tajudeen Ibrahim, head of research at Chapel Hill Denham expects inflation to average 15.0 percent in 2018, up marginally from 15.91 percent in October, according to the National Bureau of Statistics (NBS). Mhango forecasts 12 percent inflation on average in 2018, but 11.3 percent by year-end.
Inflation declined for the eight successive month in October, after rising to an 11-year high in January, following an almost 40 percent naira devaluation and higher petrol costs. The government targets 12 percent next year.
However this remains above the preferred target of between 6-9 percent.
Meanwhile, external reserves are expected to benefit from higher oil production in 2018.As of Nov. 20, external reserves were at $34 billion, according to CBN data.
The median average of the five economists is for an 11 percent increase in oil production to 2 million barrels daily from 1.8 million barrels daily as of August 2017, according to most recent OPEC data.
Oil prices are however forecast to dip slightly from a current two-year high of $63 per barrel to average of $55 per barrel next year.
“We have forecasted oil prices to average $54.98 in 2018 and range between $45 and $75. For background, we forecasted average oil prices of $49 in 2017 and a range of $38 to $63. This means we expect a greater degree of volatility in the market in 2018 but prices will remain above Nigeria benchmark prices,” said Dolapo Oni, head of research at Ecobank Group.
Brent crude closed at $63.02 per barrel on Wednesday, according to Bloomberg data.
Ibrahim of Chapel Hill Denham expects oil prices and production to average $55.46 per barrel and 2 million barrels daily in 2018, while he predicts the All Share Index of the Nigerian Stock Exchange to close 2018 at 43,975.
That’s a 20 percent increase from the 36,608 points at the close of trading on Wednesday, Nov. 22, and would put stocks at a three-year high.
Stocks have rallied to a near two-year high boosted by the Investors’ and Exporters’ window created in April 2017, and improving corporate earnings, following acute dollar shortages and industry-wide losses recorded last year when Nigeria slumped to its first economic recession in a quarter of a century.
The economy has turned the corner this year, expanding 1.4 percent in the three months through September, for the second straight quarter, according to NBS data, while dollar liquidity has improved on the back of the Investors’ and Exporters’ window.
The Q3 turnout led FSDH Merchant bank to revise its growth forecast for the Nigerian economy to less than 1 percent this year from 1.2 percent initially.
“We expected 2.01 percent growth in Q3 but with the turnout, we have had to cut down our previous GDP projection for the year to less than 1 percent,” said Ayo Akinwunmi, head of research at FSDH Merchant bank. The International Monetary Fund expects a 0.8 percent growth this year and 1.2 percent in 2018.
Nigeria’s economic expansion in the third quarter was higher when compared to the growth of 0.72 percent YoY recorded in the preceding quarter and contraction of 2.34 percent YoY reported in the corresponding quarter of 2016.
However, when broken into constituents, weaknesses are obvious which casts a cloud over the outlook of real GDP going forward, according to analysts at Lagos-based investment bank, Cardinal Stone.
“While initiatives by the federal government in the agriculture sector is expected to stay strong and propel the sector further into growth, we believe existing pressures in other key non-oil areas, notably the telecommunications sub-sector will persist and limit output expansion in the non-oil sector.
“Given this, we expect the final quarter of 2017 to remain driven by the oil sector and forecast real GDP for the economy to expand by 0.97 percent YoY and 0.58 percent YoY in Q4’17 and FY’17 respectively. Our lower growth forecast for Q4’17 is premised on expected lower growth from the oil sector due to the higher crude oil output of 1.76mbpd in Q4’16 relative to 1.61mbpd in Q3’16,” the analysts noted.
Specifically, while Oil GDP (10 percent of GDP) rose double digit by 25.89 percent compared to the comparable period last year and primarily bolstered overall economic growth, non-oil GDP (90 percent of GDP) contracted by 0.76 percent compared to last year, due to sustained negative growth in Services – Trade (-1.74 percent YoY), Information & Communication (-4.48 percent YoY) and Real Estate (-4.12 percent YoY).
The positives will outweigh negatives next year, according to Kyari Bukar, chairman of the Nigeria Economic Summit Group (NESG).
“With oil production stabilising at around 1.8 million barrels daily and indications that this could even increase into 2018, it is positive for external reserves and the exchange rate,” Bukar said.
“The harvest period is also around the corner which is likely to slow down food inflation, and I expect the MPC to cut the benchmark lending rate by some 200 basis points next year which would help the real sector in terms of accessing credit at lower interest rates,” Bukar added.
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