Nigerian market in cautious mode as ‘week of data’ begins

Nigeria’s financial market is set begin activities today with cautious decisions as the week, expectedly, will off-load a flurry of “wanted” economic reports that will affirm the country’s health status.

Specifically, the National Bureau of Statistics (NBS), will lead the week with its scheduled release on Wednesday the second quarter (Q2) 2016 Gross Domestic Product estimates; and July 2016 Consumer Price Index and Inflation.

Others are Q2 2016 Capital Importation and Foreign Direct Investment (FDI) report; Q2 2016 Unemployment and Underemployment Watch; Q2:2016 Foreign Trade estimates; and July 2016 PMS/Petrol Price Watch.

Among these reports, the Q2 GDP report and inflation numbers, will be uppermost to settle the speculations over Nigeria’s economic status.

Already, a poll of financial and economic analysts showed a gloomy outcome, as consensus forecasts on both data were decidedly bearish, with no expectations of any positive surprise from the rest.

Afrinvest Securities Limited in a note to The Guardian over the weekend noted that the downward trend in growth of the economy, which began in late 2014 majorly due to falling oil prices, has persisted till date.

It pointed out that foreign exchange market illiquidity, downtime in power supply that has defied CBN’s huge intervention and depressed real income continue to weigh on productivity, investment and consumer spending.

“We expect a real contraction between -1.5% and minus two per cent in Q2 GDP due to constrained oil production, which is a key metric in estimating oil sector GDP, due to activities of militants in the Niger Delta.

“Further weakness in growth of the services sector, which includes trade and financial services, on account of the exchange rate shortages which peaked during the period and pressure on consumer discretionary income.

“Extended contraction of the manufacturing sector as suggested by Manufacturing Purchasing Managers Index (PMI) surveys carried out by the CBN between April – June 2016 in which New Orders and Production Level were below the 50 per cent threshold that separates expansion and contraction,” the company said.

Analysts also said there will be a further rise in inflation to 17.6 per cent because the underlying factors pushing it have remained steady since June.

However, they were optimistic that there would not be sell-off in the financial market in the case of negative outcome because the scenario has already been priced into securities’ valuations.

The President of Time Economics, Dr. Ogho Okiti, in his economy brief, said that though the benchmark interest rate hike serves the need of attracting both local and foreign investors, it has some side effects for the growth of the economy.

“There has been a significant jump in borrowing costs across all segments of bank borrowers. Small and medium scale enterprises appear to be worst hit as they are often considered to be high risk borrowers,” he said.

Being ill-equipped to deal with the current sharp slowdown in the level of economic activities in the country, considering their nature, they have not contributed enough in the period under review and may serve as a source of poor results in the expected data.

According to him, if the strong indication provided by the Finance Minister is something to go by, Nigeria only needed official confirmation to proceed into recession and the economy itself has so far not performed better.

“Higher interest rates negatively affects economic agents and this is easily amplified in an economy like Nigeria where output has been negative amid low business confidence and bleak economic outlook in the near term,” he said.

Okiti added that businesses are likely come under renewed pressure as profits fall on reduced cash inflow, rising costs and increased interest expenses. “The current lack of investment outlets, supported by near term poor growth prospects will likely push unemployment to record levels by the third of the year.”

“Though oil production increased to 1.7 million barrels per day from the dramatic low of 800,000 bpd in early June, only about 55% of government’s projected revenue in the 2016 budget was realised in the first half of the year, compounded by weak tax and customs revenues. Weak tax and customs revenues follow the pass through effects from low oil prices and general weak economic conditions,” he added.

A Research Analyst of FXTM, Lukman Otunuga, said fears over recession still linger, a second quarter GDP that fails to meet expectations could worsen sentiment further, consequently leaving the Naira vulnerable to heavy losses.

“With low oil prices seriously punishing Nigeria, the Federal Government may have been forced to adopt a conservative approach in the three-year project- the Medium-Term Expenditure Framework (MTEF).

“While some optimism could be felt from the approval of the three-year budget, investors may heavily focus on the second quarter GDP report, which will offer clarity on how the Nigerian economy is faring.

“Nigeria displayed resilience this week by approving the three-year budget plan despite concerns remaining elevated over slowing growth which weighed heavily on sentiment,” he said.

According to him, the moves by the government could be seen as a blueprint on how the nation plans to recover in this period of uncertainty.