Q1 2024: Macroeconomic and financial market review

MACROECONOMIC AND FINANCIAL MARKET REVIEW

The first quarter concluded on a near-positive note after a roller-coaster period markedby significant developments. The monetary policy committee met twice, and FYGDP results were released. Meanwhile, inflation continued its upward trend, prompting the CBN to hike the benchmark rate by 600 basis points over four weeks.

DOMESTIC MACROECONOMIC REVIEW

To start with, In Q1 2024, inflationary pressures remained high, with rates recorded at 29.90% in January, 31.70% in February, and 33.20% in March. This persistent inflation was primarily driven by the depreciation of the Naira, insecurity impacting food production, and rising energy costs affecting transportation and production. According to the latest report from the National Bureau of Statistics (NBS), as of March 2024, food inflation reached 40.01%, while core inflation stood at 25.90%.

Shifting focus from Inflation, The Nigerian economy grew by 2.74% year-on-year in FY 2023, a decline from the 3.10% growth reported in FY 2022. Notably, the oil sector GDP improved, narrowing its contraction to -2.22% in FY2023 from -19.22% in FY 2022. This improvement reflects efforts by the authorities to clamp down on oil theft and pipeline vandalism, which bolstered oil production during the period. Conversely, non-oil sector GDP growth moderated to 3.04% from 4.84% in FY 2022, highlighting the adverse effects of the Naira redesign policy, subsidy removal, Naira devaluation, and sustained inflationary pressures, which collectively slowed the economy during the year.

GLOBALMACROECONOMIC REVIEW‍

In the United States, private sector activity softened amidst lingering cost pressures in March. According to flash estimates from S&P Global, the US Services PMI settled at 51.7 points in March, down from 52.3 points in February, while the Manufacturing PMI moderated to 51.9 points from 52.2 points in February. Price pressures and weak external demand weighed down business activity. However, both indices remained above the 50-point psychological benchmark for the fourteenth consecutive month, indicating robust activity despite the prolonged period of high interest rates from the US Fed. Similarly, factory activity was impacted by rising labor costs and higher energy prices yet remained resilient for the third consecutive month. Overall, the Composite PMI settled at 52.2 points in March, slightly down from 52.5 points in February, reflecting aweakened expansion rate across private sector firms.

During the quarter, the People's Bank of China (PBoC) held a monetary policy meeting andvoted to cut the five-year loan prime rate by 25 basis points to 3.95% (previously 4.20%) after eight consecutive months of leaving the rate unchanged. This move is attributed to the government's intentions to (1) boostconfidence in the economy, (2) promote investment and consumption, and (3) easepressure on the real estate market. Meanwhile, the country’s apex bank voted to maintain the one-year loan prime rate at 3.45% for the seventh consecutive month, diverging from market expectations of a reduction to 3.30%.

FINANCIAL MARKET REVIEW

In the first quarter, the monetary policy committee met twice, both of which resulted in rate hikes as the committee sustained its tightening stance. The hike serves as a double edge to rein in inflation while simultaneously narrowing the Country’s negative real return. In total, the monetary policy rate (MPR) was raised by 600 basis points in Q1 2024. (February 2024: 400 basis points; March 2024 – 200 (basis points).

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