Analysts at CSL released an outlook for the year’s second half, stating their views on the macroeconomy and the financial markets where they slightly reduced their forecast GDP growth rate to 3.32% from 3.37% as they anticipate the prevailing high-interest rate environment and FX pressures will suppress growth in the non-oil sector.
Analysts expect that the Information and Communications Technology (ICT) sub-sector, which plays a key role in the service industry, will continue to decline. However, they believe that expanding operations at the Dangote refinery will support the economy in the year’s second half. Additionally, it is expected that the Naira will not significantly appreciate in the official market in the latter half of the year, but there will be less volatility. The base case is for the Naira/US dollar exchange rate to close in 2024 at N1448.71/US$. In a worst-case scenario, if the CBN cannot source the required FX to support the currency, we foresee the Naira deteriorating to a low of N1670.71/US$.
In the year’s second half, analysts predict that headline inflation rates will decrease due to the base effect and the slowing impact of energy and currency pressures. They anticipate that an upcoming executive order to suspend import duties on essential items such as staple foods and drugs for six months will contribute to the expected decline in the nation’s headline inflation rate. Analysts forecast that inflation will decrease to 26.72% by the end of the year, with an average of 30.96% for the fiscal year 2024. While there is an expected slight decrease in inflation for June (33.93%) and July (32.56%), this marginal decline will not be enough to warrant a change in the monetary stance, especially considering the Central Bank of Nigeria’s year-end inflation target of 21.4%. Additionally, weak capital inflows will likely keep the Naira pressured ahead of the next MPC meeting, prompting the MPC to implement a final rate hike of 50-100 basis points (bps) for the year. After this anticipated adjustment, they expect the CBN to maintain the MPR for the remainder of the year.
For 2024, the budget deficit stands at N9.18trn, and the country’s total public debt had grown to N121.67trn (US$91.46bn) by March 2024, up from N97.34trn (US$108.23bn) in December 2023. The debt-to-GDP ratio as of FY 2023 stood at 41.5%, above the DMO benchmark. The reintroduction of petrol subsidies in 2024 is expected to worsen fiscal expenditure, likely necessitating further borrowing. Analysts forecast debt to GDP ratio to reach 51.5% at the end of FY 2024, higher than the IMF forecast of 46.5%.
Analysts remain cautious about the potential for better performance for the equities market in the second half of the year. While banks’ capital-raising activities may provide a temporary boost, we expect the market to return to current levels afterwards due to tight system liquidity. Apart from corporate actions and announcements, we do not foresee significant drivers of market performance in the latter half of the year. That said, many stocks remain attractively valued for investors with a mid-to-long-term perspective. We maintain Buy ratings on UBA, Access Bank, Zenith Bank, Guaranty Trust Bank, Lafarge Africa, MTN Nigeria, UACN, Unilever, Okomu, and Presco within our coverage universe.
Market | Capital Market
Nigeria’s Equity Market Took a Bullish Turn in H1 2024, as Banking Index Fell -7.47% YTD
