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FSDH Predicts Continued Sluggish Economic Activities in 2020


Hamda Ambah
Managing Director of FSDH Merchant Bank, Hamda Ambah

Analysts at FSDH Merchant Limited have anticipated that the sluggish economic performance recorded in the second quarter of the year will continue for the rest of the year.

This, the Lagos-based bank attributed in an economic report it released yesterday, to the lockdown of key sectors due to the Covid-19 pandemic, the tough business climate and persistent challenges in the economy.

Nigeria’s Gross Domestic Product (GDP) for the second quarter of 2020 contracted by 6.1 per cent, which was the first negative growth since the first quarter of 2017. The contraction in GDP was as a result of the decline in crude oil price and the implementation of lockdown and movement restrictions due to COVID19.

The country joined the list of countries –

South Korea (-3.3%), Singapore

(-41.2%), US (-9.5%), Germany (-10.1%) that experienced GDP contraction in

Q2.

Furthermore, FSDH Merchant Bank estimated that Nigeria’s foreign exchange challenge would play a major role in shaping economic outcomes in the second half of the year.

“Already, there have been limited foreign exchange supply which has resulted in depreciation of the currency in the parallel market.

“More recently, the CBN has embarked on foreign exchange rationing and exchange rate adjustments, among other measures, to reduce pressure on the naira and maintain a stable exchange rate.

“Drawing from experience during the last recession, limited availability of FX as well as FX rationing could have unintended consequences on broad economic aggregates such as GDP, inflation, external reserves and foreign investments,” the report added.

Furthermore, it stated that growth of key sectors such as trade, manufacturing and agriculture could also be constrained by limited availability of foreign exchange to secure inputs.

Nigeria’s headline inflation rate rose to 12.82 per cent in July 2020, a 26 basis points increase from 12.56 per cent in June 2020.

It pointed out that increase in food inflation was a major driver of overall inflation rate in Nigeria.

On a month-on-month basis, average prices rose by 1.25 per cent.

According to the report, forex shortages, exchange rate depreciation and supply bottlenecks are key factors responsible for the increase in general price level, adding that inflation rate would continue to trend upwards in coming months given the anticipated pressure from exchange rate depreciation and supply side constraints.

“By our estimates, inflation rate will average

12.9 per cent in 2020. Nigeria faces severe stagflation as GDP decline, unemployment and inflation rise. For full-year 2020, we expect the economy to contract by 4.6 per cent,”it added.



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