In the light of certain worrisome economic trends in the country and on the global scene, Nigeria has been warned by an expert, Lukman Otunuga, to pay attention to the warning signals lest Africa’s largest economy suffers severe consequences.
Otunuga, a senior research analyst at FXTM, cautioned that mixed oil markets and Nigeria’s Q2 slowdown jointly signal economic dangers for the country.
According to him, another recent escalation in the trade dispute between the US and China has punished crude oil prices and set off warning signals for oil-producing countries like Nigeria.
Africa’s largest economy by gross domestic product (GDP) remains tied to oil revenues, the most significant source of foreign exchange earnings which helps bolster its foreign reserves used to defend the local currency, the naira. Uncertainties in oil revenue earnings, therefore, portends a great danger for the economy as a whole.
Otunuga further explained that aside the raging trade disputes between China and the US, the fall in Nigeria’s GDP in Q2, 2019 signals another danger ahead.
He said, “Nigeria’s GDP slowed down to 1.94 percent in the second quarter from 2.1 percent in the first quarter, following the trend seen in several economies such as Germany and the UK.”
According to him, “it is becoming quite clear that as long as oil dependence remains one of Nigeria’s biggest risks, this will continue weighing heavily on the economy for the rest of 2019.
“While the GDP data should nudge the Central Bank of Nigeria (CBN) to cut interest rates for the second time this year in September in an effort to stimulate growth, this is a temporary fix to a bigger problem.”
Otunuga explained that the trade disputes similarly have direct bearing on the performance of Africa’s biggest economy, adding that persistent trade disputes between the world’s two largest economies are set to fuel fears over a global slowdown or even recession.
He said: “Oil prices declined on the basis that a decelerating global growth may result in lower demand for the commodity Nigeria relies on for 90% of its export earnings.
“In the context of a trade dispute, tariffs “are like bombs exploding on trading relationships, supply deals and eventually on company profits.”