This report provides Vetiva’s analysis on the economic assumptions undergirding our 2011 outlook. Kindly find the highlights below:

 

Global growth outlook: Positive but fragile recovery

 

§ Emerging Market (EM) economies are projected to remain the drivers of global growth in 2011, sustaining the trend witnessed in 2010, though at a modest rate this time. We anticipate the growth in the Developed Economies (DE) will remain a drag on overall growth as the world’s largest economies battle to resolve their fiscal issues.

 

§ The United States (US) is likely to adopt fiscal consolidation in trying to reduce its deficits which may taper growth. In the Euro zone, attention will be largely focused on probable intra-region contagion and, the continuing viability of a single European currency.

 

§  Potential rise in oil and commodity prices, food Inflation are likely to fuel inflation pressures in the EM region. In the DE, narrowing supply slacks and higher inflation expectations support a gradual rise in inflation.

 

§ There is likely to be a gradual push towards global rebalancing between the world’s surplus and deficit countries. Implementation of global rebalancing will be challenging in the short-term as it will put pressure on consumption patterns with adverse effects on economic growth.

 

Nigeria growth outlook: Positive and Stable
Pre- Elections: We expect a lull in policy decisions ahead of the April elections. However, we note the following:

 

§ The January 13 PDP Presidential primaries will provide direction on what to expect in the April presidential elections.

 

§   Although not on the façade, issues surrounding zoning within the ruling party is a challenge that must be overcome if incumbent President, Goodluck Jonathan expects to emerge as the party’s flag bearer, come April.

 

Post- Elections: Attention will begin to shift from politics to policy.

 

§ Economic growth projected at 7% remains viable driven by the agriculture and oil sectors. The 2011 budget will be revised in the course of the year which makes the currently projected 3.62% fiscal deficit unrealistic.

 

§ We expect inflation to remain in double digits in H1’11 feeding from demand induced pressures from the domestic environment, and external supply shocks such as rising oil and food prices.

 

§ We expect the naira to remain stable in 2011, within the N150/US$ (+3/-3%) band and anticipate the Central Bank of Nigeria (CBN) intervening to defend the naira, if necessary.

 

§ The need for an improved profitability performance (measured by ROE) will stimulate banking system credit growth into the double digits territory.

 

Political Risk
§ As the build-up to elections becomes more intense, we anticipate some instability in the polity, given the inherent socio-political risk related to pre-election violence. Notwithstanding, we expect an overall stable economic landscape in 2011.

 

Equities Outlook

§ In our view, the driver for the Nigerian Equity market in 2011 will be the banking sector as they consolidate on 2010 earnings and balance sheet recovery especially with the lighter NPL burden following AMCON’s purchase of eligible toxic assets.

 

  

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Research Division

Vetiva Capital Management Limited