Q4 2023: Macroeconomic and financial market review

NUPEMCO Q4 2023 NEWLETTER

The Final Quarter of 2023 came with a few trading days due to the holidays but that did not halt events from unfolding both in the Global and Domestic Economy.

DOMESTICMACROECONOMIC REVIEW

To start with, Nigeria witnessed a surge in its annual inflation rate, reaching 28.20% in November 2023, marking the highest figure since August 2005. Inflationary pressures were notable across various sectors, including food and non-alcoholic beverages (32.6% compared to 31.3% in October), clothing and footwear (16.6% compared to 16.4%), housing and utilities (23.4% compared to22.9%), health (23.9% compared to 23.3%), recreation and culture (8.8% compared to 8.4%), and restaurants and hotels (24.1% compared to 24%). Conversely, there was a slight moderation in prices for communication (6.1% compared to 6.3%),education (20.4% compared to 21.1%), and miscellaneous goods and services (21.6% compared to 22%). Meanwhile, inflation rates remained steady for alcoholic beverages, tobacco, and kola (at 16.5%) and furnishings and house hold equipment (at 16.3%). Looking at a monthly perspective, consumer prices exhibited a 2.1% growth in November, following a 1.7% increase in October.

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Shifting focus from Inflation, the NBS-released labor report indicated a slight increase in Nigeria's unemployment rate, edging up from 4.1%to 4.2% in Q1’ 23. However, when compared to Q4' 22, there was a note worthy decrease of 1.1%. The youth unemployment rate (ages 15–24) also saw an up tick from 6.9% to 7.2% during the same period, raising concerns about the economic outlook for this demographic. Additionally, the mismatch between available job opportunities and individuals' skill sets in the country is expected to perpetuate the trend of emigration (the "japa wave"), leading to a loss of skilled professionals, particularly in critical sectors like health. While this may result in increased remittance inflows, there is an urgent need for the government to implement measures that promote productivity, encourage business expansion, and facilitate the absorption of the growing workforce.

Moving ahead, President Bola Ahmed Tinubu, on the 29th of November 2023, presented the 2024 budget before the joint session of the National Assembly. The budget is the largest in Nigeria’s history with a size of N27.5 trillion and a revenue projection of N18.32 trillion resulting in a budget deficit of N9.18 trillion. Revenue comprises oil revenue of N7.69 trillion, non-oil revenue of N3.52trillion, and Independent and other revenue sources of N6.86 trillion. The expenditure consists of capital expenditure of N8.72 trillion, non-debt recurrent expenditure of N9.92 trillion, debt service of N8.49 trillion, and statutory transfer of N1.38 trillion. These estimates imply that debt service is 30% of total expenditure and 95% of capital expenditure.

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For the third consecutive quarter in Q3-23, the Nigerian economy continued its positive growth trajectory. The recently released GDP report from the National Bureau of Statistics (NBS) indicates a year-on-year growth of 2.54%, slightly up from the 2.51% recorded in Q2-23. It is noteworthy that the growth during this quarter was marginal, reflecting the impact of high production costs resulting from the FX devaluation, despite improvements in the oil sector. The oil sector demonstrated improvement in Q3-23, attributed to the government's persistent efforts to combat oil theft and vandalism, leading to enhanced crude oil production levels. Crude oil production saw a substantial increase of 20.8% year-on-year, reaching 1.45 million barrels per day, compared to 1.22 million barrels per day in Q2-23. However, the non-oil sector experienced a slower pace of expansion, with a growth rate of 2.75% y/y in Q3-23 (compared to +3.58% y/yin Q2-23). The sector's performance was weakened by currency pressures observed during the period.

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GLOBAL MACROECONOMIC REVIEW

According to data from the Bureau of Labor Statistics (BLS), the annual inflation rate in the United States slowed to 3.1% in November 2023, marking the lowest level in the past five months, down from 3.2% in October. A closer examination of the detailed breakdown reveals that the reduction in energy prices (-5.4% year-on-year compared to October: -4.5% year-on-year) and a moderation in the cost of food (+2.9% year-on-year compared to October: +3.3% year-on-year) were the main factors contributing to the overall decrease in consumer prices for the evaluated month. Additionally, on a month-to-month basis, there was a 0.1% uptick in consumer prices, contrasting with the 0.0% recorded in October.

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Shifting our focus to the United Kingdom, the yearly inflation rate decelerated to 3.9% in November 2023, reaching its lowest point since September 2021, down from 4.6% in October. The primary factor contributing to this decline was the transport sector (-1.5% compared to 0.5%), primarily influenced by decreases in motor fuels and, to a lesser extent, secondhand cars, maintenance and repairs, and airfares. Additionally, there was a lesser increase in prices for alcoholic beverages and tobacco (10.2% compared to 11%), and a continued decrease in prices for housing and utilities (-3.4% compared to -3.5%). On the other hand, inflation remained unchanged for communication (8.1%), education (4.5%), and restaurants and hotels (7.5%).

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FINANCIAL MARKETREVIEW

The year 2023 concluded with the NGX All Share Index reaching a record high of 74,773.77 points, although the market capitalization slightly missed the N41 trillion mark, closing at N40.92 trillion. The NGX's All-Share Index experienced a substantial growth of 45.90% for 2023, propelled by outstanding performers in the market. In the quarter, both NGX ASI and NGX PEN achieved growth rates of 12.64% and 13.79%, respectively.

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Q4-2023 INVESTMENT RETURNS AND ASSET ALLOCATION

Despite the movements observed in the fixed-income and domestic equity markets in the last quarter of 2023, our RSA portfolios delivered positive outcomes through out the period.

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