January 15, 2025/CSL Research
Yesterday, we released our macroeconomic outlook for 2025 (refer to CSL Research 2025 Outlook – Economic Prospects Inspire Cautious Optimism, 14 January 2025). The economy is projected to grow by 3.90%, driven by a significant 9.63% expansion in the oil sector and a 3.56% growth in the non-oil sector. In the manufacturing sector, we project growth of 1.38% in 2025, slightly up from the estimated 1.26% in 2024.
Agricultural output is expected to remain modest, with a projected growth of 1.16% in 2025 compared to an estimated 1.02% in 2024. We also anticipate modest improvement in the services sector, with the transport sector acting as a primary driver. Additionally, sectors such as ICT, trade, and real estate are expected to experience slight growth, contributing to the growth of the services sector.
In 2024, Nigeria’s inflation remained on an upward trajectory due to persistent pressures such as food supply shortages, elevated energy costs, and currency depreciation. However, inflation is expected to moderate slightly in 2025, averaging 29.50% compared to 33.20% in 2024. By year-end, inflation is projected to decline further to 25.16% from the estimated 35.04% at the end of 2024. This anticipated easing is supported by base effects, reduced foreign exchange volatility, and the potential for lower Premium Motor Spirit (PMS) prices, spurred by increased competition among local refineries. Additionally, domestic consumption is expected to improve modestly in 2025.
Our outlook suggests minimal currency devaluation (refer to the FX section of the report), which is expected to result in reduced FX losses for businesses, thereby supporting profitability. We project Nigeria’s foreign exchange reserves to range between US$41.00 billion and US$43.00 billion in 2025, driven by a sustained current account surplus.
Additionally, the government is likely to issue more dollar-denominated domestic debt and Eurobonds, as a gradual dovish shift by global central banks is anticipated to improve access to international financial markets. The Naira is expected to trade at an average of NGN1696.62/US$ in 2025. However, significant upside risks remain, which could affect this projection and warrant close monitoring.
The November rate hike likely marked the conclusion of the Central Bank of Nigeria’s (CBN) tightening cycle. Looking ahead, we anticipate that the CBN will maintain interest rates for most of 2025, with a potential rate cut of 100–150 basis points in the second half of the year. This outlook is informed by expectations of moderating inflation, fiscal considerations, and recent indications of the CBN’s policy direction, signalling a more accommodative stance in response to evolving economic conditions.
The government has proposed an unprecedented expenditure of N47.90 trillion for 2025, representing a 36.64% increase compared to the 2024 budget. Meanwhile, debt servicing plans have surged by 85.99% y/y to N15.38 trillion. This sharp increase reflects the impact of a weaker currency on external debt financing and a persistently high-interest rate environment. On the revenue side, we are optimistic about improved tax collection, driven by stronger economic momentum, enhanced tax mobilization efforts, crackdowns on tax evasion, and greater transparency within the tax system.
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