Oil price recovery eases COVID-19 slump in Nigeria ─Report

* Consumers feeling the impact of disruption in economic activities ─Survey

* Current forecast of $35pb to improve account deficit by about 1.5% of GDP

Isola Moses | ConsumerConnect

Nigeria, Africa’s biggest economy, is said to have had a week of good and bad news as the oil price rebounded to the highest level in two months, while the negative impact of the Coronavirus pandemic on consumers and business activity became clearer.

Crude prices have doubled since hitting a two-decade low in April 2020, climbing past $40 a barrel after OPEC+ cuts started taking excess supplies from the market, according to Bloomberg.

With oil bringing in 90% of foreign exchange revenue for the continent’s largest producer, this will boost government income and dollar liquidity.

Ironically, Nigeria is among the countries accused by the production group of not fully complying with the reductions that helped push up prices in the last month.

Mahmoud Harb, a Director at Fitch Ratings, says if oil prices stabilise close to the current levels until the end of the year, it would add modest upside risks to forecasts for economic growth, public finances and international reserves of the country.

Harb stated that a 10% rise in the full year’s average crude price above the company’s current forecast of $35 per barrel would improve Nigeria’s current-account deficit by about 1.5% of gross domestic product.

Yields on Nigerian bonds maturing in 2047 fell from an all-time high of 13.2% on March 19 to 8.6% Friday, June 5 a sign that investor concern has eased.

Although the West African country has ruled out going to international bond markets this year, the cost of raising new debt will be relatively lower now if it chooses to.

While the purchasing managers index of Stanbic IBTC Bank and IHS Markit’ rose last month, report indicates that it has remained below 50, suggesting the economy of Africa’s largest crude producer will shrink in the second quarter.

The Central Bank of Nigeria (CBN) recently said the economy might avert a recession and that the drop in GDP could be less than the 3.4% projected by the International Monetary Fund (IMF), but its own manufacturing PMI fell to 42.4 in May after staying above 50 for 36 consecutive months.

The manufacturing PMI compiled by Lagos-based FBNQuest Capital fell to 43.3 in May from 45.8, with all sub-indices in contracting territory, stated the report.

“The recession this year will be smaller than in advanced and many peer economies because of the limits to Nigeria’s integration within the global economy.

“For the same reason its U-shaped recovery in 2021 is likely to disappoint. Household demand remains squeezed,” analysts at investment banking firm, FBNQuest wrote in a note Friday.

In terms of the widespread impact, the Nigerian consumers are said to be feeling the impact of the disruption in economic activities, according to data released Friday by the statistics agency.

At least 79% of respondents in a survey said their incomes have decreased since mid-March, when restrictions were imposed to curb the spread the pandemic.

More than 42% who were working before the pandemic now say they no longer do and 51% of households were forced to buy less food due to higher costs.

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