March 15, 2024/Coronation Research

Global Economic Landscape, a Delicate Balance between Optimism and Caution

The resilience in the latter half of the previous year sets a foundation for cautious optimism, albeit amidst lingering challenges and potential turbulence. The anticipated steady global GDP growth of at least 3.1% y/y, in addition to a gradual decline in average global inflation, offers a glimpse of hope for Nigeria’s macroeconomic trajectory. Labor market trends, inflation dynamics, investment patterns, and trade dynamics all play pivotal roles in shaping Nigeria’s 2024 macroeconomic outlook.

Inflation, Still Elevated at Double-digit

In Nigeria, inflation is expected to remain elevated closing at 27.5% y/y (in our base-case scenario), driven by persistent factors such as insecurity, foreign exchange depreciation, and the impact of the removal of PMS subsidy, among others. Despite moderate dips, these expected fluctuations are largely attributed to statistical reasons (i.e., base effects) rather than improvements in supply-side dynamics or the successful mitigation of demand-pull inflation.

Fiscal Landscape, FGN Bond Yields

In our view, achieving the proposed revenue target in 2024 would require deliberate efforts towards tackling the challenges in the oil sector. The proposed fiscal deficit of N9.1trn is expected to be financed by new borrowings totaling c.N7.8trn (domestic: c.N6.1trn, external: c.N1.7trn). Other sources of deficit financing include privatization proceeds and drawdowns on bilateral/multilateral programs. We expect fixed income yields to remain elevated in 2024, potential hikes in the monetary policy rate and continuous market liquidity mop up will also impact yield movements.

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