Recent economic updates show a mixed global outlook. This week, we focus on Japan, Zambia, and Nigeria. Japan’s growth rate slowed due to decreased capital spending, although consumer spending has offered some support. In Nigeria, inflation surged to 33.88% in October due to rising food and energy prices. The central bank is expected to further tighten monetary policy to combat these inflationary pressures. Here are the latest updates on Nigeria’s economy, including inflation rate, monetary policy, and market trends.
The Japanese economy expanded at a 0.90% YoY in Q3:2024, down from 2.20% in Q2:2024, due to a dip in capital spending and weather disruptions. However, consumer spending partially offset these setbacks. Capital spending declined by 0.20%, reflecting global economic headwinds, particularly in sectors like chip manufacturing. Net external demand subtracted 0.40% from growth. Japan‘s economy is expected to continue its gradual recovery, supported by improved labor market conditions, wage growth, and rising consumption.
In Sub-Saharan Africa, the International Monetary Fund (IMF) has reached a staff-level agreement for the fourth review of Zambia‘s loan program, potentially unlocking around $185.50 million in funding. However, further structural reforms are needed to address long-term challenges.
Nigerian Economy
The U.S. Agency for International Development (USAID) has allocated $2.30 million to procure 4.80 million malaria treatment tablets from Swiss Pharma Nigeria (Swipha). This partnership aims to improve access to high-quality malaria treatment for vulnerable populations and support local pharmaceutical production. It is expected to enhance Nigeria’s healthcare system by driving local production and decreasing reliance on imports.
The Federal Government of Nigeria plans to raise $1.70 billion through Eurobonds and an additional $500 million via Islamic Sukuk bonds to address the projected N9.10 trillion ($5.20 billion) budget deficit in 2024. These funding efforts could bolster Nigeria’s access to foreign capital, increase the nation’s external debt, and heighten exposure to currency risk. Fiscal sustainability will depend on strengthening domestic revenue sources and reforms to lessen dependency on external borrowing.
Nigeria has secured a $134 million loan from the African Development Bank (AfDB) to support its 2024/2025 National Dry Season Farming program, focusing on seed and grain production. This initiative aims to enhance food security, curb import reliance, and strengthen local production.
Nigeria’s Consumer Price Index (CPI) report shows a two-month high of 33.88% in October 2024, up from 32.70% in September. This increase is attributed to rising food prices, energy costs, supply chain disruptions in agriculture, and foreign exchange volatility. Despite the Central Bank of Nigeria‘s (CBN) interest rate hikes and the government’s zero-duty import policy, inflationary pressures persist. Despite government and monetary policy interventions, the headline index reflects price pressures across all components.
Nigeria’s headline inflation rose for the second consecutive month in October 2024, reaching 33.88%, mainly due to significant food and core inflation increases. The Federal Executive Council (FEC) has approved an N47.90 trillion budget estimate for the 2025 fiscal year, pending approval by the National Assembly.
The inflation expectation survey indicates that inflation will continue to rise in the next three to six months. Food inflation climbed to 39.2% from 37.8% in September, exacerbated by reduced harvests due to severe flooding and ongoing security crises in critical agricultural regions. Transport inflation rose to 29.3%, driven by higher petrol and gas prices following the removal of subsidies. Housing and utilities inflation also edged up to 28.8% from 28.6%. Core inflation, which excludes volatile food and energy prices, hit an all-time high of 28.4%. State-level inflation rates were highest in Bauchi, Kebbi, and Sokoto, while Delta, Benue, and Katsina recorded the lowest.
Money Market
The secondary fixed income market experienced a bearish performance, with average treasury bills and bond yields increasing by 38bps and 2bps, respectively, reaching 24.27% and 19.43%, respectively.
The Nigerian Eurobond market’s average yield increased to 9.66% from 9.31% last week, driven by widespread sell-offs and higher premium demand. Yields are expected to remain high, with increased buying interest in specific maturities.
Equities Market
The Nigerian Exchange (NGX) saw a positive performance this week, with the All-Share Index (ASI) rising by 0.50% to close at 97,722.28 points. This was driven by sector rotation and portfolio rebalancing activities, reflecting optimism from Q3 earnings releases and the undervalued nature of many stocks with solid upside potential. The market capitalization also increased by 0.50%, settling at N59.22 trillion, adding N295 billion in gains to investors’ portfolios.
However, year-to-date, the ASI delivered a 30.69% return, while the broader market saw more decliners than gainers, reflecting broader investor sentiment due to economic uncertainties. Market activities were lackluster, with low traded volumes and value, indicating the absence of smart money in the market. Across the sectoral front, three out of five sectors moved northward, reflecting strong investor sentiment. The best-performing securities were FLOURMILL (23%), JOHNHOLT (61%), SUNUASSUR (32%), TANTALIZER (34%), and EUNISELL (46%),\.
The Nigerian equities market saw a 0.57% YoY gain, closing at 97,788.78pts, following two consecutive weeks of losses. This increase was primarily driven by buying interest in FLOURMILL, OANDO, and GTCO. Across sectors, NGXBNK, NGXINS, NGXCNSMRGDS, and MERI-TELCO saw positive performance, while NGXOILGAS, NGXINDUSTR, and MERI-AGRIC closed in negative territory. Top gainers for the week were FLOURMILL, EUNISELL, JOHNHOLT, CONHALLPLC, and SUNUASSUR, while DEAPCAP, IKEJAHOTEL, DAARCOMM, UNIVINSURE, and FIDSON topped the losers’ chart. The year-to-date performance reached +30.69%.
Conclusion
Nigeria’s inflation crisis necessitates monetary adjustments and structural reforms to address persistent bottlenecks. Infrastructure improvements, agricultural productivity, and currency stabilization are crucial for long-term price stability. Despite the Central Bank’s tight monetary stance, structural challenges like inadequate infrastructure, high energy costs, and logistical inefficiencies hinder anti-inflationary policies’ effectiveness.
We expect inflation to rise to 34.45% in November, influenced by seasonal price pressures. Due to persistent inflationary pressures, the CBN’s Monetary Policy Committee (MPC) is expected to tighten further, potentially increasing the MPR by 25 to 50 basis points.
The market is expected to continue a tug-of-war between bulls and bears, with bulls likely to gain an edge. Despite market volatility, investors should focus on undervalued stocks. The release of October’s CPI data may influence sentiment, while investors should prioritize strong stocks and stay vigilant about economic developments.
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