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By Peter Egwuatu

Giving the faster than expected recovery in economic activities experienced in the first half of 2021, H1’21, as well as the low base impact of 2020, financial analysts have upgraded their growth forecast for the Nigerian economy to higher rate for the second half, H2’21, and consequently full year 2021.

Analysts at United Capital Plc in their forecast report released weekend, said: ‘‘Looking ahead, a myriad of factors will shape the trajectory of the Nigerian economy in H2’21. First, developments around Covid-19 infections and vaccination rates will determine if economic growth garners pace. Also, the success of the Federal Government, FG’s external debt issuance plans be critical for the, FG’s ability to finance its budgetary obligations and for improved USD flows, stronger e Foreign Exchange, FX reserves and consequently, the exchange rate. The subsidy program, which is expected to last till Oct-2021 is also key to watch as the rising cost of subsidies (estimated at over N100.0 billion/month) continue to weigh on FG’s finances.

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“Furthermore, the Monetary Policy Committee (MPC) will be meeting three times before the end of H2-2021. The committee’s decision on the monetary policy rate at these meetings would be a key factor to watch in the second half of the year.”

Continuing they stated: “ Overall, we raise our Gross Domestic Product, GDP forecast for 2021 to 3.1 per cent Year on Year, y/y from our prior forecast of 2.1 per cent y/y, with rapid economic growth of 7.4% y/y and 4.4 per cent y/y in Q2’21 and Q3’21. The upward adjustment to our GDP forecast reflects the faster than expected recovery in economic activities, as well as the low base impact of 2020. ‘‘Despite continued inflationary pressures, we expect the high base effect of H2’20 to create an inflection point for consumer prices, causing the headline rate to continue trending downward. ‘‘Lastly, we expect to see sustained stability in the FX market as oil prices are expected to remain strong while the upcoming Eurobond issuance is expected to support external reserves. Certainly, downside risks abound, mostly tied to the key factors highlighted above, but also due to the rising insecurity bedeviling the country.

‘‘We express concerns that failure to stem the recent tide of instability could lead to a country-wide breakdown, disruption of economic activities, destruction of oil installations and weakened investor sentiments. Thus, government’s action or inaction regarding the security situation would be a critical factor to watch.”

In their own report, analysts at Cordros Capital said: “ Domestic economic activities continue to expand, albeit slowly, on account of the  sustained opening of the economy,  increased cross-border activities,  lagging impact of government intervention to critical sectors and ( rally in oil prices. Since the last MPC meeting in May, economic activities have continued to improve despite the emergence of a delta variant of the COVID-19 virus worldwide (first spotted in Nigeria on 8th July).

‘‘Given the impact of lockdown measures on activities last year amidst weak public finances, we do not think the government will rekindle lockdown measures. Instead, we believe efforts will be concentrated on improving vaccination and creating awareness to the citizens on the potential impact of a third wave.”

“On balance, we expect the economy to grow by 3.37 per cent y/y in Q2’21 (Q1’21: +0.51 per cent y/y), primarily driven by the favourable base effect from the prior year amidst a moderate improvement in economic activities. ‘‘Consequently, we believe the Committee would be cautious with the growth outlook given that the Q2’21 GDP figures would be flattered by a favourable base effect from the prior year.

‘‘With the domestic economy still vulnerable to external shocks, we believe it would induce the Committee to favour standing pat on its monetary policy decisions.”

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