Analyst Foresees 3% GDP Contraction for Nigeria in 2020

July 30, 2020

Contrary to the 5.4 per cent contraction forecasted by the International Monetary Fund (IMF) for the Nigerian economy in 2020, the Group Managing Director of Cowry Asset Management Limited, Mr. Johnson Chukwu, has projected that the economy would witness a contraction of between two per cent and three per cent this year.

Chukwu, stated that the steep decline projected by the IMF would be moderated by the expected growth in the agricultural and ICT sectors, account for 36 per cent of Nigeria’s GDP.

He made this projection yesterday when he presented a paper titled: “The Nigerian Economy- Half Year Review; Expectations and Investments Strategies in H2 2020.”

He said: “While we agree that the Nigerian economy will contract in 2020. We, however, believe that the contraction will not be as steep as the 5.4 per cent projected by the IMF.

“We expect that the agriculture sector, which accounts for 22 per cent of the GDP to remain resilient due principally to favourable weather condition this year. This is in spite of setbacks from highlighted insecurity in the northern part of the country.

“The ICT sector accounts for 14 per cent of the GDP and is expected to maintain its growth momentum in the remaining quarters of the year.

“In summary, robust growth in agriculture and the ICT, which combined account for 36 per cent of the GDP will have the effect of cushioning the rate of economic contraction in 2020. We, therefore, project an economic contraction of two percent to three per cent in 2020.”

He also projected a “V” sharped economic recovery for Nigeria.

“Any way you slice it, the Nigerian economy may only recover slowly in the aftermath of the pandemic. We expect a weak Q2 and Q3 results will drive equity prices lower and in spite of the OPEC’s agreements and cuts, oil prices may not return to the nation’s comfort zone of $60 per barrel anytime soon,” he said.

The analyst in advising on the best investment strategy for investors said: “Investors with long-term horizon may be facing the best of time. We advise focus on fundamentally strong companies with low P/E, high dividend yield and historically high return on equity,” adding that the agriculture, ICT, healthcare and financial services that are less affected by the pandemic disease would attract more investments.

He advised fixed income investors to invest in short-term bonds and in fixed deposits to retain the ability to benefit from the expected upward shift in the yield curve.

He also projected that the economy would witness new corporate bond issue as firms position to take advantage to the low yield environment, even though that the focus would be on, “investment grade instruments with adequate risk premium.”

Chukwu added: “So far, the CBN has maintained relatively high OMO yield environment as 341 days OMO bills traded at 9.8 per cent as at June 18, 2020. An upward shift in the yield curve may be seen in the Q4,”

According to him, the monetary authorities are challenged by near total absence of fiscal policy direction.

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