Fitch: Rebound in Domestic Demand Will Drive Nigerian Economy in 2026

•Says inflation to moderate to 14.2%, GDP to rise to 4.3% 

•Flags fiscal weakness as limit to extensive infrastructure drive

•Projects Nigeria’s oil output to rise moderately to 1.73m bpd next year 

•Sees CBN policy rate at 24% by year-end

•Lists unforeseen disruption in Dangote refinery, insecurity, US sanctions as risks

Emmanuel Addeh in Abuja

BMI, a Fitch Solutions Company, has projected that the Nigerian economy will be largely accelerated by growing domestic demand, while the country’s  real Gross Domestic Product (GDP) growth will rise from 4.1 per cent in 2025 to 4.3 per cent in 2026, the fastest pace in four years.

In its new Country Risk report on Nigeria, it highlighted that these will be driven by stronger household spending and fixed investment, marked by easing inflation and falling interest rates.

Besides, the report stated that oil production will rise slightly to 1.73 million barrels per day in 2026, boosting exports, but said surging imports – as a result of stronger domestic demand – will erode net exports’ overall contribution to growth.

According to the report, risks to Nigeria’s growth outlook are predominantly skewed to the downside, given possible disruptions at the Dangote refinery, deteriorating security conditions and a possible further strain in relations with Washington.

“We forecast Nigeria’s real GDP growth to edge up from 4.1 per cent in 2025 to 4.3 per cent in 2026, marking the fastest pace in four years. The latest data from Nigeria’s National Bureau of Statistics (NBS) show that the economy expanded by 4.2 per cent y-o-y in Q3 (market terms), up slightly from 4.1 per cent in Q2.

“The improvement was mainly driven by stronger growth in agricultural output, which accelerated from 2.8 per cent in Q2 to 3.8 per cent in Q3, supported by favourable weather conditions and government efforts to support fertiliser distribution and usage.

“The services sector also gained momentum, with growth rising from 3.9 per cent in Q2 to 4.2 per cent in Q3, underpinned by activity in retail trade and financial services,”Fitch said in the report.

By contrast, it stated that the growth in the industrial sector slowed sharply, moderating from 7.4 per cent in Q2 to 3.8 per cent in Q3, as crude oil output gains softened.

“Stronger economic growth in 2026 will be supported by a more robust rebound in household demand. The macroeconomic reforms introduced by President Bola Tinubu’s administration in 2023–2024 – most notably the liberalisation of Nigeria’s foreign exchange market and the removal of the fuel subsidy – triggered a surge in inflation and a sharp contraction in consumer spending during those years.

“While we think a cautious recovery began in 2025, a more pronounced improvement will take place in 2026 as inflation moderates from an average of 21.0 per cent in 2025 to 14.2 per cent in 2026, the lowest annual level since 2020 – supported by a more stable exchange rate and tighter liquidity.

“Easing price pressures will relieve strain on household budgets and unlock some pent-up demand throughout the year,” the report pointed out.

That said, Fitch stated that it does not expect a full recovery in household spending in 2026, noting that government efforts to strengthen revenue collection – including the likely introduction of a 5.0 per per cent fuel levy in January and broader measures to improve tax compliance – will put a cap on consumer demand.

“Overall, we forecast private consumption to expand by 7.7 per cent in 2026 and add 2.3 percentage points (pp) to headline real GDP growth,” the world renowned research company stated.

“Fixed investment will also be a key driver of economic growth in 2026. Lower inflation will enable the Central Bank of Nigeria to cut its policy rate by a cumulative 300 basis points to 24.00 per cent by year-end, boosting credit uptake and supporting private-sector investment,” the report said.

It stated that major infrastructure projects – such as the Lagos-Calabar Coastal Highway and Railway, the Eastern Rail Corridor (Port Harcourt to Maiduguri), and ongoing capex at the Dangote refinery – will provide additional momentum for the construction sector and overall gross fixed capital formation.

However, Fitch stated that the persistent fiscal weakness will limit the government’s ability to launch an extensive infrastructure drive, as seen in other Sub-Saharan African countries such as Côte d’Ivoire and Tanzania.

Moreover, lingering investor caution amid insecurity and chronic policy uncertainty, it said, will constrain foreign direct investment outside the oil and gas sector. These structural challenges will continue to cap upside for fixed investment through 2026, it explained .

“All told, we project gross fixed capital formation to expand by 7.0 per cent and add 0.9pp to headline growth,” the report said.

For oil production, it stated that this will improve modestly in 2026, providing some support to exports. Output, it stressed, had fallen to record lows in 2022 due to widespread pipeline vandalism, oil theft, and prolonged underinvestment, but has since staged a partial recovery.

“Our oil & gas team forecasts total liquid hydrocarbons output to average 1.73 million barrels per day in 2026, up 1.9 per cent from 1.70 million bpd in 2025  and above the official OPEC production quota of 1.50 million b/d. This will be driven by midstream infrastructure upgrades, debottlenecking efforts, and incremental output from smaller fields.

“However, gains will remain limited by a lack of major new projects and continued, albeit reduced, levels of theft and vandalism,” it stated.

Fitch emphasised that much of the export gains, however, will be offset by rising imports. As inflation and borrowing costs ease, stronger domestic demand will drive higher imports of goods needed to support the recovery, given Nigeria’s limited manufacturing capacity, it noted.

“Moreover, the Dangote refinery is likely to source more domestic feedstock, placing a ceiling on crude oil exports. As a result, we expect net exports to contribute just 0.7pp to headline growth in 2026, a sharp decline from 3.2pp in 2025.

“Looking ahead to 2027, we expect economic growth to moderate to 3.8 per cent . Inflation will remain relatively subdued – averaging 11.5 per cent – while the central bank continues to cut the policy rate to 20.00 per cent by year-end, allowing the recovery in domestic demand to continue into 2027.

“However, the absence of major new oil project start-ups before 2028 means there will be no significant capacity additions to counter declines from ageing infrastructure, which will weigh on Nigeria’s export performance in 2027,” it said.

Besides, the report explained that Nigeria’s economic growth outlook faces predominantly downside risks, with three key risks standing out, listing them as disruptions at the Dangote refinery, further rise in insecurity as well as rising tensions with the US.

“The Dangote refinery has significantly reduced Nigeria’s reliance on imported fuel through 2025 and improved foreign exchange liquidity. While we expect this to continue in 2026, any operational delays or disruptions would keep fuel imports higher-than-expected, worsening FX pressures and inflation, which would dampen Nigeria’s growth outlook.

“A worsening in Nigeria’s already precarious security landscape – which has come under increased pressure in 2025 due to a spike in kidnappings – would disrupt agricultural output and oil production, two key growth drivers. It would also deter investment and raise fiscal costs for security, limiting resources for infrastructure and social spending.

“If US–Nigeria relations worsen in 2026 – following President Donald Trump’s allegations of unsubstantiated Christian persecution in Nigeria – there is a risk that Washington could resort to economic measures, such as higher tariffs or sanctions.

“Such actions would likely disrupt Nigeria’s oil exports, limit access to US markets and financing, and erode investor confidence, collectively weighing on growth,” the Fitch report explained.