By Dike Onwuamaeze
Cordros Securities has projected an improved capital account, increased yields on treasury bonds and rise in the equity market in its revised 2021 Economic Outlook for the Nigerian economy.
The revision followed the rapid global rollout of COVID-19 vaccines, rising oil prices, the prospect of significantly larger federal government borrowing and rising fixed income yields.
Cordros noted that some of its medium-term projections have been achieved within the first two months of the year, warranting updated views on growth over the rest of the year following the release of the better-than-expected Q4-20 GDP numbers.
The new update affected its views on oil prices, Nigeria’s balance of payments, the equities market, and the yield environment.
It expressed cautiously optimistic outlook for the crude oil market by revising upward its, “2021 Brent crude average price estimate to between $55 and $60 per barrel (pb) from between $45 and $50 bp.”
It added: “Our demand growth forecast remains around 6.0 per cent for 2021, but we are encouraged by the fact that crudes stocks are easing, implying a tighter market.
“On supply, the OPEC agreement remains firmly intact, and the decisions made to ease supplies back into the market should keep prices in check. Higher oil prices are likely to encourage an increase in non-OPEC supply.
“Finally, we are fully aware that, more than ever, oil prices are not just about physical supply and demand but also speculative interest.
“Investors are rushing back into the crude market, with combined net long contracts in WTI and Brent crude oil futures reaching 737 million barrels last week, the biggest bet on rising prices since October 2018.”
The new Cordros outlook on Nigeria’s balance of payments is also better than it had earlier reported.
It now expects an improved current account (CA) picture, with the deficit moderating from $17.28 billion in 2020 to $15.48 billion in 2021 against previous forecast of $22.63 billion due to higher oil price forecast, lower goods imports and improved remittances.
“The preceding translates to a CA deficit as a GDP percentage of 3.08 per cent rather than the 4.57 per cent that was previously estimated. Meanwhile, we maintain that the Central Bank of Nigeria’s (CBN) capital control measures will remain in place for most of the year, contributing to the moderation in aggregate imports.
“Pertinently, we now expect exports to grow by 21.8 per cent year on year (y/y) to $44.22 billion, and total imports to decline by 8.42 percent y/y to $43.24 billion. Elsewhere, we expect the services account (net) and net income payments to increase by 48.9 per cent y/y and 69.3 per cent y/y, respectively. Lastly, we expect current transfers to settle at $22.80 billion against 2020 $19.40 billion.”
Furthermore, Cordros adjusted its expectations on the fixed income capital market yields for treasury bonds and bills average yields to about 10 per cent and seven per cent respectively.
It observed that this year has been quite volatile compared to the tail end of 2020 when the Debt Management Office’s (DMO) auctions resulted in higher yields over a short period.
“The trend came despite the ‘lower-for-longer’ mantra postulated by the Monetary Policy Committee (MPC), which seemed like a unified view upon which policy direction would be based.
“In the time since, yields have spiked, with the average yields on treasury bonds and bills rising to 9.4 per cent and 3.9 per cent respectively (+3.3% and +3.4% YTD),” Cordros said.
