By Lukman Otunuga,
Senior Research Analyst at FXTM
In the face of economic instability and uncertainty, Nigeria eased lockdown restrictions this month to jumpstart growth.
The opening up of more sectors of the economy is a welcome development and may even boost consumption which accounts for a handsome chunk of gross domestic product (GDP). However, a rise in the number of coronavirus cases may sabotage the government’s efforts to revive Africa’s largest economy. It is fair to say that the outlook for Nigeria remains clouded by the coronavirus chaos with the economy expected to shrink by 3.2%, according to the World Bank. But the country is not alone as other emerging market and developed nations may suffer a similar fate.
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Inflationary pressures made an unwelcome return last week as the pandemic disrupted farming activities, which hit food producers and consumers. With inflation jumping to 12.4% in May, questions are being raised on whether the Central Bank of Nigeria (CBN) will have enough room to cut interest rates further. On the bright side, foreign exchange reserves seem to be on a rise and could jump back towards the $40 billion level if oil prices can push higher. Rising reserves should provide enough ammunition for the CBN to defend the naira against external and domestic risks.
Speaking of oil, the commodity is on route to concluding the week roughly 10% higher despite the rising coronavirus cases in Beijing, parts of the United States and Japan. OPEC has given Nigeria and three other countries till Monday 22nd of June to submit a schedule of oil production cut compensation plan. It will be interesting to see how the country plans to compensate for the overproduction in April’s deal.
As last week slowly came to an end and the Naira stabilized around N453 to the Dollar on the parallel exchange, global sentiment remained dictated by coronavirus developments and growth concerns.