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Review of the Nigerian Economy and the Capital Market

Review of the Nigerian Economy and the Capital Market. Office of the Chief Economist Securities and Exchange Commission. Outline. The Global Economy Domestic Output and Growth Prices and Employment Fiscal Operations of the Government External Sector Activities Capital Market Developments

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Review of the Nigerian Economy and the Capital Market

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  1. Review of the Nigerian Economy and the Capital Market Office of the Chief Economist Securities and Exchange Commission

  2. Outline • The Global Economy • Domestic Output and Growth • Prices and Employment • Fiscal Operations of the Government • External Sector Activities • Capital Market Developments • Developments in the Money Market • Oil and Commodities Market • Minimum wage • Outlook

  3. The Global Economy (IMF, WEO-OCT) • Global expansion is expected to be steady in 2018-19, though uneven across economies. • Downside risks to global growth • Rise in trade policy uncertainties • Rising debt levels • Geopolitical tensions • Failure of Brexit negotiations • Resilience in financial market and output growth in advanced economies, growth sluggish in EMDEs • Increased risk to global financial stability • Growth in total non-financial sector debt (from $113 trillion in 2008 to $167 trillion in 2018) • Rising external debt in emerging market economies • African countries especially vulnerable, with external debt of about 12% of GDP ($417 billion) • Capital outflows from increased interest rate of advanced economies

  4. The Global Economy (IMF, WEO-OCT) • US – growth remains robust, revised down due to its trade measures. Additional rate hikes expected in 2018 and 2019 • UK – growth weaker than expected, revised down amidst fears failed Brexit negotiations • China – weaker growth on the wake of the recent US trade measures and weak credit growth • Brazil – growth revised down • India – higher oil prices impacts growth • SSA – growth projection favorable due to rising commodity prices • Nigeria – improving growth prospects driven by higher oil prices and relatively stable exchange rates

  5. OUTPUT AND GROWTH • Growth slowed down to 1.5% in Q2 2018 • Largely as a result of contraction in the oil sector • The non-oil sector reflected the strong performance in the construction and services sectors • The CBN and FBN Purchasing Managers Index (PMI) increased to 56.5 and 56.8 points respectively • Indicating an expansion in the sector • Indicates GDP growth may pick up in Q3

  6. PRICES AND EMPLOYMENT • Headline inflation rose to 11.28% in October • Due to rise in food inflation • Core inflation on the other hand declined • Upside risks to inflation • Election spending • Minimum wage increase • Floods • Insecurity in food producing regions • Unemployment figures still expected • Job creation remains a challenge

  7. FISCAL OPERATION • The Federation Account Allocation Committee (FAAC) disbursed N741.8 billion in September • 10.9% higher than the N668.9 billion shared in June • FAAC distribution expected to remain high largely due to high crude oil prices and improved production • Total revenue of N2.8 trillion was raised from January to date • Expenditure doubled total revenue • Revenue should have been about N5.4 trillion • Revenue generation still a challenge

  8. EXTERNAL SECTOR • Exchange rates remains stable • Ensured by the Central Bank’s consistent intervention • External reserves fell to $44.31 billion in September • Now around $42bn • Capital outflows • CBN intervention • Preference for exchange rate stability over reserve build up

  9. capital MARKET • The All Share Index stood at 32,766.37 in September • Fell 14.4% when compared to June figure • Market Capitalization for the same period was N12.2 trillion • Market performance can be attributed to • Sustained profit taking • Capital flow reversal as yields in developed economies become more attractive • Political uncertainty • FMDQ monthly turnover recently about N16trn • NASD monthly turnover recently around N1bn

  10. MONEY MARKET • MPR still at 14% • Short-term rates are on a decline • Average OBB in September is 6.2% • During the same period O/N rate was 7.3% • Decline in market rates reflects • Maturing securities • Increased statutory allocations to states and local governments

  11. OIL PRICE AND PRODUCTION • Price of bonny light averaged US$79.45/b in September 2018 (OPEC) • An increase of 6.1% when compared to the price in June (US$74.86/b) • US sanctions on Iran likely to impact price and supply • Oil production averaged 1.72mbpd in September • An increase of 18.4% when compared to June (1.45mbpd) • Oil production to remain stable as • There were minimal disruptions and force majeure • Oil price currently at $71.4pb • Increased production from US, outside OPEC • OPEC considering output cut

  12. Minimum wage

  13. OUTLOOK • GDP growth – improved activities in the manufacturing sector, stable oil production and high oil prices could accelerate Q3 GDP growth • OPEC meets in December, but likely to maintain current quota • Inflation may spike – increased election and wage increase • Capital outflows – US Fed rate hike • Suppress stock market activities • Good time to buy – when every one is selling • Election times • Interesting times!

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