Cordros Capital Limited, a Lagos-based investment group, has said Naira will continue on a stable curve through the remaining months of this year, although the slowdown in the catalytic oil sector could dampen overall economic growth.
In its fourth quarter economic outlook, Cordros Capital stated that elevated dollar sale by the Central Bank of Nigeria (CBN) will persist on the back of sustained pent-up foreign exchange demand occasioned by continued offshore sell-offs.
Analysts at Cordros Capital however noted that increased CBN inflow driven by higher crude oil price and prospects of $2.8 billion Eurobond, combined with strong foreign exchange reserves, currently at some $43.9 billion, would provide the apex bank with the back-up to sustain foreign exchange stability.
“We believe the CBN has more than enough legroom to keep the naira at current level through the rest of the year,” Cordros Capital stated.
The investment banking group however cut its Gross Domestic Products (GDP) growth projection for 2018 to 1.9 per cent, citing slower-than-previously expected oil sector growth, flood-induced cutback in agriculture output, and the absence of structural reforms to propel sturdy manufacturing sector growth even as the forex market remains stable.
“With the gains from base effect already dissipated, together with our expected higher month-on-month inflation over fourth quarter 2018 compared to 2017, we expect the year-on-year headline Consumer Price Index (CPI) to sustain upward trajectory through the rest of the year. We now look for headline CPI of 11.54 per cent year-on-year in September and 12.71 per cent in December, with full year 2018 average of 12.37 per cent,” Cordros Capital stated.
Inflation had resumed uptick in August 2018 as the impact of base effect induced gains waned. Notably, amidst sustained forex stability, the renewed pressure stemmed from food inflation which jumped 31 basis points to 13.16 per cent on year-on-year basis, while core inflation sustained its deceleration, driven by stable energy and electricity prices.
According to analysts, going forward, the efforts of the Federal Government at ensuring continued cease-fire in the Niger-Delta region – especially with elections around the corner – combined with improved oil production following the lifting of force majeure on Forcados, will aid rebound in oil GDP.
Cordros Capital expected crude production to average 2.00mb/d through the rest of year, hinged on expected crude production ramp up in the Trans-Forcados Terminal which has already resumed activities. Against that backdrop, analysts projected oil GDP growth of 1.5 per cent year-on-year and 2.5 per cent year-on-year for third quarter 2018 and fourth quarter 2018 respectively.
On the other hand, crop and livestock outputs are expected to remain pressured, with the herdsmen and farmers clash largely unresolved, and exacerbated by the recent reported cases of flooding in the food producing areas. The reverberating effect will continue to drag Agriculture GDP. However, sustained momentum of Service GDP, combined with strong Construction GDP, is expected to neuter sluggish Agriculture GDP, with knock-on effect driving strong non-oil GDP. On Service sector, ICT and Transportation sector will dictate the pace of growth, with ICT playing the lead role. Specifically, for ICT, analysts estimate that active subscribers for voice and data usage over third quarter 2018 surged 15.7 per cent and 13.0 per cent respectively.
“Overall, we project non-oil GDP growth of 1.87 per cent year-on-year and 2.08 per cent year-on-year for third quarter 2018 and fourth quarter 2018 respectively. On balance, we now look for third quarter 2018 and fourth quarter 2018 GDP growth of 1.83 per cent year-on-year, leaving full-year2018 estimate at 1.9 per cent as against 0.82 per cent in 2017,” Cordros Capital stated.