How coronavirus, oil price, dollar will impact projected growth in Nigeria’s private sector

Adesola Afolabi

There are projections for a rebound in Nigeria’s private sector this month in the wake of latest Purchasing Managers Index (PMI) figures released by Stanbic IBTC showing a likely rebound to 57.0 for January from 56.8 in December, says Lukman Otunuga, senior research analyst at FXTM.

The positive projection is however threatened by external factors in the form of coronavirus fears, depressed oil prices and dollar’s valuation.

According to Otunuga, these developments will influence the country’s outlook despite domestic data’s boost to support the economy and local stocks.

Elaborating on the direct impact of these external factors, Otunuga noted in his weekly commentary made available to business a.m that the coronavirus outbreak which is shaving a chunk out of China’s GDP could hit the Nigerian economy in term of trade flows.

“China is Nigeria largest trading partner with total trade between both countries over $3 billion during the third quarter of 2019, he said, adding that  Chinese stock markets plunged 8 percent during the early parts of Monday as markets reopened after the Lunar.

Otunuga also explained that severely depressed oil prices will most likely weigh on Nigeria’s export earnings and government revenues.

“Oil depreciated 12 percent in January and could extend losses this month due to demand concerns and fears around slowing global growth. China’s demand for oil is expected to have dropped by three million barrels a day, which is 1.3 million barrels more than OPEC’s combined output cuts. Add to this a global cancelation of airline flights to China and the result would be an extremely oversupplied market. Although OPEC + may implement deeper production cuts when they meet on Feb 4-5, the question is if this will this be enough to limit downside losses?”

Otunuga however noted that if oil prices continue to depreciate, this will not only threaten Nigeria’s economic recovery but complicate efforts to implement the 2020 budget which has set the benchmark for Oil at $57 with revenue targets of N2.64 trillion.

Calling attention to Friday’s US jobs report, Otunuga said it will be the main risk event and a potential market shaker. “A strong jobs report should boost the dollar, which is likely to punish emerging market currencies including the Nigerian naira,” he forecasted.