OPEC: Nigeria’s Economy Challenged by Inflationary Pressures

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•Predicts GDP rise
•Maintains 2021 global oil demand growth forecast

Emmanuel Addeh in Abuja

The Organisation of Petroleum Exporting Countries (OPEC) yesterday noted that the Nigerian economy remains challenged by inflationary pressures on the back of rising food prices and possible recent naira adjustments.

The 13-member oil cartel also maintained its 2021 forecast for global oil demand growth, but kept projections cautious amid uncertainties over the devastating impact of the COVID-19 pandemic.
OPEC, writing in its Monthly Oil Market Report (MOMR) for January and quoting secondary sources, stated that Nigeria’s Gross Domestic Product (GDP) is also expected to rise in the medium term, given the current rising oil prices and positive vaccine trajectory.

It said: “Nigeria’s economy entered a recession in 3Q20 with real GDP contracting by 3.6 per cent y-o-y after a sharp contraction of 6.1 per cent y-o-y in 2Q20. Moreover, the inflationary pressure continued to challenge Nigeria’s economy, as the CPI rose to 14.9 per cent y-o y in November from 14.2 per cent y-o-y in October.

“Elevated food prices and possible naira adjustments pose additional inflationary risks. Inflation rose by 1.60 per cent m-o-m in November 2020, the highest since May 2017, following an increase of 1.54 per cent in October 2020.

“On a bright note, consumer confidence increased to -14.80 points in 4Q20 from -21.20 in 3Q20. Business confidence, in contrast, decreased to -15.20 points in December from -15.0 points in November.”
Quoting Moody’s, OPEC stated that Nigeria’s credit rate is now B2/negative, which reflects increasing exposure to fiscal and external shocks amid the limited fiscal resources available.

“Otherwise, the Stanbic IBTC Bank Nigeria PMI increased to 51.8 in December 2020 from 50.9 in the previous month, indicating an overall improvement in the Nigerian non-oil private sector. Also, according to the survey, sentiment regarding 2021 recorded a five-month high, fuelled by business expansion plans

“In the meantime, a meaningful rise in oil prices following the recent DoC decisions along with a positive trajectory from Covid-19 vaccines would brighten the 2021 outlook and lay the groundwork for a hopeful medium-term real GDP expansion,” it noted.

On the global plane, OPEC said it expected oil demand in 2021 to increase by 5.9 million barrels per day year-on-year to average 95.9 million barrels per day, unchanged from last month’s assessment.
The group said world oil demand growth in 2020 declined by 9.8 million barrels per day year-on-year to average 90 million barrels per day, adding that the fall is marginally less than expected in December.

“Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behaviour.
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism,” it added.

OPEC said its 2021 forecasts “assume a healthy recovery in economic activities, including industrial production, an improving labour market and higher vehicle sales than in 2020.”
OPEC+ initially agreed to cut output by 9.7 million bpd, before easing cuts to 7.7 million and eventually scaling back further to 7.2 million from January.

International benchmark Brent crude futures traded at $55.77 a barrel yesterday, down 0.5 per cent for the session, while U.S. West Texas Intermediate (WTI) futures stood at $52.76, around 0.3 per cent lower.

“Demand for OPEC crude in 2020 remained unchanged from the previous report to stand at 22.2 mb/d, around 7.1 mb/d lower than in 2019. Demand for OPEC crude in 2021 remained unchanged from the previous report to stand at 27.2 mb/d, around 5.0 mb/d higher than in 2020,” the report stated.