Tuesday, 2 June 2020


Lukman Otunuga,
Senior Research Analyst at FXTM

In a move that caught many by surprise, the Central Bank of Nigeria (CBN) pulled the trigger on lower interest rates for the first time since March 2019. The decision, which was in line with the strategy adopted by many central banks may stimulate economic growth ahead of a potential economic recession triggered by lower oil prices and the coronavirus pandemic. Although Africa’s largest economy was able to expand 1.87% during the first quarter of 2020, fears remain elevated over the economy descending into a recession this year.

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On the bright side, markets remain hopeful that the worst of the coronavirus pandemic is over with economies reopening across the globe. While economic data is expected to paint a gloomy picture over the coming months, there is a strong sense of hope that stability will return by 2021. It now becomes a question of whether the CBN and government exhausted all their tools to mitigate the negative impacts of the coronavirus to economic growth and stability.

On the data front, the manufacturing PMI sank to 42.4 in May which was its steepest pace of contraction in manufacturing activity since August 2016. Non-manufacturing plunged to 25.3 during the same month, pointing to the sharpest monthly contraction in services since July 2014. Confidence over the economy may be shaken in the near term as economic data paints a very gloomy picture. Investors will direct their attention towards the latest trade balance figures on Wednesday and inflation data next week.

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Outside of Nigeria, there will be a strong focus on the possible OPEC meeting, European Central Bank policy meeting and US jobs report on Friday. Given how Oil accounts for a handsome chunk of Nigeria’s export earnings and government revenues, the outcome of the OPEC meeting and potential impacts it will have on Oil prices will be felt in Nigeria. Other key themes driving global sentiment will revolve around US-China trade tensions, Brexit and lingering concerns over slowing global growth.

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