July 9, 2025/CSL Research
Yesterday, we published our outlook for the second half of the year. As we begin H2, Nigeria’s growth prospects remain cautiously optimistic, consistent with the expectations set at the start of the year. This optimism is supported by improving economic momentum and early signs of moderating inflation. Overall, our macroeconomic and market forecasts have largely held steady, and the underlying narrative of a gradual recovery remains intact.
However, while the recovery continues, economic momentum has softened slightly. We now project real GDP growth of 3.7% in 2025, revised down from our earlier estimate of 3.9%, as persistent structural challenges—such as limited fiscal space and sluggish household consumption—are expected to weigh on the recovery.
Following the rebasing of the Consumer Price Index (CPI), our inflation projections have been revised downward. We now expect average inflation to moderate to 22.9% in 2025, compared to our initial forecast of 29.5%. Despite this improvement, real household consumption has declined over the past three years, and prices of goods and services are likely to remain sticky even as inflation cools.
The Naira has recorded marginal gains year-to-date, ending the first half of the year at ₦1,530 per US dollar, supported by significant Central Bank interventions. Based on our blended currency valuation, we estimate the fair value of the naira at ₦1,647 per US dollar (previously ₦1,687), using a combination of Purchasing Power Parity (PPP), Real Effective Exchange Rate (REER), and Interest Rate Parity (IRP) models. While these models are more reliable for medium- to long-term assessments, they are less predictive in the short term. We expect the CBN to maintain its commitment to defending the naira, likely keeping the exchange rate within the ₦1,500–₦1,600 range in H2. However, sustaining this strategy remains increasingly challenging without a material improvement in foreign exchange inflows.
On monetary policy, with inflation moderating and core inflation decelerating, we anticipate the Monetary Policy Committee (MPC) will begin an easing cycle in the fourth quarter, reducing the policy rate by 100–150 basis points, assuming supportive global conditions. Such a pivot could place additional pressure on the naira and further test FX reserves.
Nigeria’s fiscal position remains fragile. While the 2025 budget targets a deficit reduction to 3.9% of GDP, we see significant downside risks. Lower-than-expected crude oil prices and production, coupled with potential shortfalls in non-oil revenues, could lead to a wider deficit.
We also expect the current account surplus to narrow substantially to 2.7% of GDP (from 9.2% in 2024), driven by weaker oil receipts and persistent services deficits. Limited foreign portfolio investment (FPI) and subdued FX inflows will likely constrain external buffers. In the equity market, Nigerian stocks delivered strong gains in H1, supported by solid corporate earnings and optimism around economic reforms.
We maintain our full-year forecast of 31% growth for the NGX All-Share Index (NGXASI). We reiterate Buy ratings on UBA, Access Bank, Zenith Bank, Guaranty Trust Bank, Lafarge Africa, Dangote Cement, Nestle, Cadbury, Presco, Airtel Africa, and MTN Nigeria. On the fixed income side, yields declined in the first half of the year, and prospective monetary easing is likely to steepen the yield curve further. We recommend overweighting long-duration bonds to capture potential capital gains as yields fall, while underweighting the short end of the curve.
Click here to download full report: CSL Nigeria Daily – 09 July 2025 – H2 2025 Outlook.pdf
