Rise in Inflation, Increased Market Activity, Worsening Economic Outlook & More on Covid-19 Worsening Economic Outlook

The recent World Economic Outlook (WEO) report released by the International Monetary Fund (IMF) reveals that Nigeria’s economy will contract to -3.4 per cent in 2020, falling from 2.2 per cent projected in 2019.

A report by The Centre For The Study Of The Economies Of Africa showed that the Fund’s projection takes into cognizance the large drop in oil prices and impact of containment and mitigation measures on economic activities. The report also projects inflation to rise from 11.4 per cent to 13.4 per cent, government debt as a per cent of GDP to increase from 29.4 per cent to 35.3 per cent and external reserves to fall from 6.1 to 3.9 months of import between 2019 and 2020.

However, GDP and inflation are expected to rebound to 2.4 per cent and 12.4 per cent respectively in 2021. Going forward, the impact of the COVID-19 pandemic, through business travel and tourism, supply chains, commodities and lower confidence, will worsen the already bleak economic outlook.

Nigeria’s economy will be particularly hard hit considering the intensity of the impact on China, a notable trading partner. The government should consider as a priority, fiscal stimulus packages for the affected industries and workers and boost investment to accelerate recovery.

Rise In Inflation Rate

The inflation rate for the month of March rose by 0.06 percentage points to 12.26 per cent, the highest level recorded since April 2018. The rise in inflation was driven by a rise in all components, with core sub-index growing by 0.3 percentage points to 9.73 per cent and the food sub-index by 0.08 percentage points to 14.98 per cent between February and March.   The rise in inflation is despite the decline in money supply in the preceding month to N2,186,723 trillion (-2.7 per cent) and the decline in petroleum prices. The COVID-19 pandemic is likely to further drive food inflation upwards as access to inputs and services is reduced, labour movement is curtailed and inter- and intra-state travel is minimized. The rise in inflation will be further worsened by the various fiscal stimulus packages deployed to combat the pandemic and its effect. In the coming months, the Monetary Policy Committee (MPC) may consider revising the Monetary Policy Rate (MPR) upwards from 13.5 per cent.

Increased Market Activity

The four-day trading week ended 17th April, saw an uptick in the total number of deals traded on the Nigerian Stock Market. 20,989 deals were traded, a 10.9 per cent increase from the preceding week. However, the total turnover and value of deals traded declined by 38% and 35% respectively. The financial services industry drove the rise with 12,835 deals followed by the consumer goods industry with 2,611 deals.

As economic activities in the country near-total shutdown, continued trading by the Nigerian Stock Exchange (NSE) through remote trading has enhanced the continuous flow of market information, which enhanced stakeholders’ investment decisions. Hence, the upward direction in deals witnessed as investors took advantage of the discounted market values and valued stocks with low transactions.

The All-Share Index and Market Capitalization both appreciated by 7.19 per cent closing the week at 22,921.59 and N11.946 trillion respectively. These indices however declined by 12.51 per cent from the values recorded in the previous year, an indicator of the recent oil price plunge amid the impact of coronavirus pandemic on the economy.