Nigeria Economic Forecast

The economy started 2023 on a softer footing. Inflation continued to rise—hitting a near two-decade high in March—and interest rates rose to a record high in the same month. Annual credit growth also softened in Q1 from Q4. Additionally, PMI data showed the cash shortage took a toll: Conditions deteriorated in February–March as activity slowed down sharply. Oil production, meanwhile, declined year on year in Q1, and further into Q2: In April, a labor strike led oil production to plunge nearly 20% year on year. More positively, a major upside risk to growth materialized when the Dangote oil refinery came online on 22 May. The refinery bodes well for public finances as it will cut the need to import fuel and turn the country into a net exporter of petroleum products. Crude refining is expected to begin in H2.

In April, inflation rose to 22.2% (March: 22.0%). Inflation should revert its increasing trend in the coming months and start to cool amid slowing activity and tight monetary policy. That said, price pressures will remain well above the upper bound of the Central Bank’s 6.0–9.0% target band in 2023 and average higher than in 2022. A weaker naira is an upside risk.