Culled—Proshare
August 7, 2017/United Capital
Global Economy: Positive outlook buoyed by strong EM growth
As economic activities gain momentum and commodity prices recover from their troughs in 2016, consensus estimates see scope for an improvement in global economic growth in 2017 [World Bank (2.7%, +125bps y/y) and IMF (3.5%, +129bps y/y)]. Global trade volumes are expected to rise 4.0% in 2017 and 3.8% in 2018 vs. an estimated 2.5% in 2016*. Even as these rates remain below “historical norms”, optimism for the global economy resonated across global equity markets during the first half of the year. (MSCI World Index: +10.1%, MSCI Emerging Market Index: 18.2%, MSCI Frontier Market Index: 12.4%).
Broadly, the picture remains bright for Emerging Markets (EMs). Riding on the waves of low US interest rate, a weak dollar, strong global growth and upbeat commodity prices, the region’s economic environment is improving. However, compared to the EMs, the picture for advanced economies is constrained by feeble productivity growth and heightened political uncertainty. Emerging and Developing Economies (EMDEs) will continue to account for most of the global growth momentum. According to the World Bank, GDP growth in EMDEs is expected to increase to 4.1% in 2017 and 4.5% in 2018 from 3.5% in 2016, on account of a pickup in economic activity from higher commodity prices and improved global demand. However, EMDEs remain vulnerable to commodity prices and tighter global financing conditions.
Nigeria: Set for a rebound as macro narratives change
In our Nigeria 2017 outlook – Green Shoots Amid Thorns – we highlighted that the badly needed economic reforms required to reset the Nigerian economy towards a path of sustainable growth hang on policy inertia. We also noted that key among the factors that defined investors’ perception of Nigeria as an investment destination in 2016 was the lack of follow-through on market-friendly reforms, a development that dented business confidence. In 2016, uprising in the Niger-Delta region dragged domestic crude oil production to record low amid a lower oil price environment. Government revenue fell sharply, liquidity crisis in the FX market worsened, headline inflation rate galloped to 18.5% and GDP fell -1.5%, plunging the economy into a recession for the first time in a quarter of a century.
But now, the tides are turning for the Nigerian economy. In contrast to lack of decisiveness in policy actions and absence of pro-market reforms observed in the first 18 months of the Buhari-led government, a long list of market-friendly policy decisions has come through. The situation in the Niger-Delta region has improved significantly as domestic crude production gradually recovers to the psychological 2.0mb/d level. After a series of policy summersaults, the CBN appears to have found a way around the FX market crisis. The economy is poised for a comeback. Investor confidence is strengthening and Nigeria seems to be open for business again. That said, the socio-political landscape remains volatile.
Find out more in United Capital’s Nigeria Outlook H2-2017
