2020 Macroeconomic Review & Outlook: At the Cliff's Edge

The global economy faces more turmoil in 2020, but we remain largely optimistic in our outlook, given the continued attempts to find a lasting resolution to the Sino-US trade war. More so, supportive fiscal and monetary policies across major economies, together with structural realignments, should steer the global economy away from a recession, and thus bolster investors' appetite for risk assets.

On crude oil, supply adjustments will support prices in 2020, but demand will be the primary driver going forward. As such, we forecast Brent crude oil price will average USD60.00 per barrel in 2020. This is a downward revision from our previous forecast (USD65.00 per barrel), with the primary assumptions including slower oil demand growth, in line with weaker global growth this year; a robust increase U.S. production increases robustly in 2020, and growth in other non-OPEC countries rises modestly.

At home, Nigeria’s fiscal authority is yet to implement any significant reform, and at the time of writing, there are no major structural readjustments slated to commence in 2020. The reluctance to go through with reforms such as downstream sub-sector deregulation poses a remote threat to the economy and will likely hamper investments in 2020. While the economy should benefit from exchange rate stability given the still healthy FX reserves, possible implementation of VAT, the impending electricity tariff revision, and the impact of the continued land border closure on food prices will exert upward pressure on inflation.

In response, we suspect that the monetary policy committee will leave the MPR unchanged despite its recent focus to redirect credit to the private sector. To add, the still weak transmission of monetary policy changes to the real economy also begs the question of the usefulness of a rate cut. Instead, we would expect to see more unconventional policy surprises, as the CBN hopes to reflate the economy in the absence of fiscal stimulus.

Elsewhere, on the NGN10.6 trillion budget approved in 2020, we assumed a budget implementation rate of 90.0%, and our scenario analysis suggests that the budget deficit could range between NGN2.83 trillion to NGN4.78 trillion. Nonetheless, we believe that it is unlikely for FGN’s domestic paper issuances to run ahead over 2020. Instead, we expect the trend of fiscal reliance on Ways & Means to continue over 2020.

Cordros Research