The year began broadly in line with our expectations for the Nigerian economy, with growth strengthening, inflation moderating and monetary policy shifting towards an easing cycle.
Momentum in early 2026 confirmed these expectations: the Monetary Policy Committee (MPC) cut the Monetary Policy Rate (MPR) by 50bps to 26.50% in February, inflation eased to a three-year low of 15.06% y/y in February, and real GDP grew 3.89% y/y in Q1-26 (Q1-25: +3.13% y/y).
However, this improving macroeconomic environment was abruptly disrupted by the US–Iran conflict. The resulting disruption to global energy markets drove the price of Brent crude upwards from USD72.48/bbl to above USD100.00/bbl, and reignited inflationary pressures through higher energy, logistics and transportation costs. While the underlying recovery remained intact, the shock has materially altered the H2-26 outlook.
Two-Sided Oil Shock
For Nigeria, the oil shock was two-sided. On one hand, higher crude prices improved prospects for export receipts, fiscal revenues and external buffers, particularly as domestic oil production continued to improve. These developments contributed to the appreciation of the naira by 4.6% YTD and sustained foreign investor interest despite weaker global risk sentiment.
On the other hand, higher energy costs intensified domestic price pressures and raised the expenditure profile for the government, limiting the fiscal dividend from higher oil prices. Consequently, Nigeria enters H2-26 with a stronger external position but a more challenging inflation and fiscal backdrop.
While the US–Iran peace deal and reopening of the Strait of Hormuz have eased pressure on global oil markets, we expect the shock’s economic effects to unwind more slowly. The price of Brent crude oil has retreated to USD71.76/bbl (as of 06 July), however, residual supply-chain disruptions, lingering geopolitical tensions and the lagged pass through of the earlier energy price shock should keep domestic cost pressures elevated through H2-26.
Accordingly, we project headline inflation at 16.03% by year-end (Previously: +14.70%) and 15.51% on average in 2026 (Previously: +14.80%). While the sequential price pressures should soften as energy markets stabilise, base effects and lingering energy-related cost pressures should leave the inflation path less linear and more vulnerable to renewed shocks.
Monetary Policy Administration
This revised inflation outlook fundamentally changes the outlook for monetary policy administration.
We no longer expect the MPC to resume its easing cycle in H2-26 and forecast the MPR to remain unchanged at 26.50% through year-end, against our earlier expectation of cumulative cuts of 300bps in 2026.
Nonetheless, economic activity should remain resilient, supported by digital activity, financial services and higher crude oil production. We project real GDP growth at 4.28% y/y in 2026E (2025FY: +3.87% y/y), reflecting continued resilience rather than any acceleration in activity amid relatively elevated input costs and still restrictive financial conditions.
Fiscal Dynamics
Fiscal dynamics present a similar tension. Tax reforms, stronger revenue mobilisation and supportive oil receipts should bolster revenue generation, but not sufficiently to satisfy elevated financing needs.
We project FGN revenue of NGN30.82 trillion, below the budget target of NGN36.87 trillion, against expenditure of NGN57.70 trillion, resulting in a fiscal deficit of NGN26.88 trillion (5.3% of GDP). Consequently, domestic financing needs are expected to stay elevated, through the rest of the year.
Against this backdrop, financial markets have remained resilient. The Nigerian equities recorded a strong performance in H1-26, with the NGX All-Share Index gaining 47.4%, close to its 51.2% 2025FY return, supported by robust earnings, improved macroeconomic stability and supportive market reforms.
In H2-26, we expect a shift from broad based recovery to selective positioning. Sustained earnings growth, supportive reforms, and the late H1-26 correction should create opportunities in fundamentally strong and liquid companies, while foreign participation should improve gradually if global uncertainty continues to moderate and FTSE Russell’s ongoing review of Nigeria’s proposed return to Frontier Market status is concluded positively. Our base case projects 30.0% upside from current levels.
Fixed Income Markets
Fixed income markets similarly require recalibrated expectations. The average yields on Treasury bills and bonds rose by 41bps and 123bps YTD to 20.0% and 17.8%, respectively, as fading expectations of monetary easing and elevated sovereign borrowings outweighed strong liquidity conditions.
Looking ahead, persistent fiscal financing requirements and an extended monetary policy pause should keep domestic yields elevated, favouring selective duration-conscious positioning. Also, within external debt markets, easing geopolitical tensions should support compression in African sovereign yield spreads, particularly for oil exporters such as Nigeria and Angola, although normalising crude prices remain a key risk.
Overall, our H2-26 outlook marks a transition from recovery to realignment. Nigeria’s macroeconomic landscape remains intact, but H1-26’s geopolitical shock has materially altered the balance of risks. We have therefore shifted from expectations of faster disinflation to slower moderation; from continued monetary easing to an extended policy pause; from fiscal relief to persistently high financing needs; and from broad based market recovery to selective opportunities.
Consequently, we believe investment performance in H2-26 will increasingly depend on disciplined positioning across fundamentally strong equities, duration-conscious fixed income strategies and sovereign credits supported by resilient external fundamentals.
Cordros
