Domestic Macroeconomy
This week, we examine the Q2:2025 Gross Domestic Products (GDP) report published by the National Bureau of Statistics (NBS) and the outcome of the 302nd Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN).
Starting with the GDP, the NBS reported that Nigeria’s real output grew by 4.2% y/y in Q2:2025 (Q1-2025: 3.1%, Q2-2024: 3.5%) marking the highest level since Q2:2021 (5.0%). From a structural perspective, this performance was jointly supported by the expansion in the oil and non-oil sectors. Specifically, the oil sector expanded by a record high of 20.5% y/y, supported by the modest improvement in crude oil output amidst efforts to clamp down on crude oil theft.
For context, NUPRC reported crude oil loss fell to an average of 9,600bpd in H1:2025, from 11,300bpd in 2024. Furthermore, the operation of the Dangote refinery also contributed positively to sector activity. Overall, crude oil average production rose to 1.68mbpd in Q2:2025 from 1.41mbpd and 1.62mbpd in Q2:2024 and Q1:2025, accordingly, even as Dangote’s refined petroleum exports spread to the US and other SSA markets. Also, the non-oil economy, which accounts for over 96.0% share of the GDP, grew by 3.6% y/y, reflecting modest growth in agriculture (2.8%), services (3.9%) and industries (7.5%).
Drilling down on the performance of the economy from a sectoral classification, crop production, trade and real estate sectors (the three largest components of the Nigerian economy jointly contributing 48.9%) expanded by 3.3%, 1.3% and 3.8% compared to 3.7%, 1.8% and 4.6% in Q1:2025. In a similar vein, core sectors of the services broad economic sector – telecommunications, construction and financial services expanded by 7.4%, 5.3% and 16.1%, respectively.
Notably, 18 out of the 19 broad activity sectors recorded growth in Q2:2025, as only Other Services sector sustained a 3.0% contraction in Q2:2025 (6.1% in Q1:2025). While this implies that growth was broad-based across most sectors in Q2:2025, we observed slower momentum in 13 out of the 19 activity sectors – signaling a fragile and uneven recovery. Looking ahead, we estimate a base case GDP growth in the range of 3.9% to 4.4% in Q3:2025, underpinned by gains from main harvest boost and the reopening of the land borders to the importation of essential grains since mid Q2:2025.
Also, we expect the improved stability in Naira/USD rate, reduced PMS prices and sustained disinflation outcome as well as ongoing capital raising activities across key sectors of the economy (banking and insurance sector for instance), to support firmer growth in the agriculture, industries (notably, manufacturing and oil refining) and services sectors to support our projection – all else equal.
Shifting gears, the MPC at its recent policy meeting opted for a cautious recalibration of its multi-year hawkish policy stance. For the first time since the Covid pandemic in 2020, the Committee cut the economy’s anchor rate – the Monetary Policy Rate (MPR) – by 50bps to 27.0%, reduced the Cash Reserve Ratio (CRR) for deposit money banks to 45.0% from 50.0% and narrowed the asymmetric corridor to +250/-250bps around the MPR, while retaining the Liquidity Ratio at 30.0% and the CRR for merchant banks at 16.0%.
These adjustments are broadly consistent with recent macro trends – inflation has decelerated for the fifth consecutive month to 20.1% in August, oil output rose to 1.68mbpd in Q2:2025 (1.62mbpd in Q1:2025), Naira has appreciated 2.8% to ₦1,488.26/$1.00 since last MPC meeting in July, while real GDP growth strengthened to 4.2% y/y in Q2:2025. Against these backdrops, we see the modest MPR cut and the other tweaks to policy variables as a signal by the CBN to fully pivot to a dovish and growth accelerating policy direction in the coming months, barring any major shock. The CRR cut also provides marginal liquidity relief to banks, improving their capacity to extend credit to productive sectors.
A key outcome of the last MPC meeting was the introduction of a punitive 75.0% CRR on non-TSA government deposits – funds from Ministries, Departments and Agencies (MDAs) not swept into the Treasury Single Account (TSA), particularly FAAC allocations to state and local governments. These funds have historically provided a sizable pool of cheap deposits for commercial banks. Based on anecdotal evidence over the past three years, episodes of Naira depreciation often coincided with periods immediately following FAAC disbursements into the banking system.
Since state and local government shares are immediately available on banks’ balance sheets, a possible link exists between FAAC flows and exchange rate volatility. That said, by sterilising 75.0% of such balances, banks would need to double down on their effort to mobilise cheap capital from private sector. For investors, the policy signals a modest easing bias, but one tempered by liquidity sterilisation, implying short-end yields may trend lower while FX stability is preserved. Overall, the MPC’s decisions underscore a delicate balancing act of loosening just enough to support growth momentum, while tightening around vulnerable liquidity channels to safeguard price & FX stability.
From a market perspective, the policy shift sets the stage for nuanced adjustments across asset classes. In fixed income, short-term yields are likely to moderate slightly as the corridor adjustment transmits more directly into interbank rates, though liquidity sterilisation will keep longer-dated instruments sticky. The equities market is expected to benefit from the growth-supportive tilt of policy, particularly cyclical stocks (whose performance rises with economic growth) such as the industrial goods and consumer goods. However, banks with heavy government deposit exposure may face near-term margin pressures. In the FX market, the oil-driven improvement in supply conditions coupled with liquidity sterilisation reduces the risk of immediate naira depreciation, but the outlook remains conditional on sustaining production and external inflows.
Domestic Equities Market: Local Bourse Extends Winning Streak… ASI up 0.2% w/w
This week, CBN trimmed the MPR by 50bps to 27.0%, its first rate cut since 2020. The move spurred some portfolio rebalancing into risk assets, providing modest support for the equities market. Against this backdrop, the NGX-ASI notched its third consecutive weekly gain, rising 0.2% w/w to 142,133.02 points. Consequently, the YTD return improved to 38.1% (previously: 37.8%), while market capitalisation rose 0.2% (₦617.4bn) to close at ₦90.0tn.
Trading activity strengthened as average volume and value traded jumped significantly by 180.9% and 479.9% w/w to 518.7m units and ₦18.1bn respectively. The top traded stocks by volume were CONHALLPLC (510.6m units), ZENITH (316.5m units) and FIRSTHOLDCO (196.4m units), while ZENITH (₦21.4bn), MTNN (₦11.0bn), and GTCO (₦9.3bn) led by value.
Across sectors under our coverage, performance was mixed as three indices closed in the green while the other three lost. Leading the gainers, the Industrial Goods index advanced 1.3% w/w, supported by renewed demand on DANGCEM (+1.7%) and WAPCO (+4.0%). Similarly, the Banking and Consumer Goods indices rose 1.2% w/w apiece, buoyed by price appreciation in ZENITH (+9.1%), STANBIC (+9.3%), INTBREW (+10.1%), and DANGSUGAR (+3.9%).
Conversely, the AFR-ICT index declined 1.8% w/w due to sell pressure on MTNN (-3.4%) and CWG (-2.6%). Following suit, profit-taking in ARADEL (-4.8%), ETERNA (-10.0%), AIICO (-3.8%) and WAPIC (-4.1%) dragged the Oil & Gas and Insurance indices lower by 1.6% and 0.9% w/w respectively.
Investor sentiment, as measured by market breadth, worsened to -0.30x from -0.03x recorded in the prior week as 33 stocks gained, 51 lost while 64 closed flat. The top gainers for the week were THOMASWY (+22.7%), NSLTECH (+21.3%) and MECURE (+20.8%) while WEMABANK (-12.4%), FIDELITY (-11.1%), and ETERNA (-10.0%) were the top losers.
In the coming week, we anticipate a mixed performance with a mild bullish bias as the recent CBN rate cut may continue to encourage selective rotation into equities. Nevertheless, the scheduled FGN bond auction, offering attractive medium-term yields, could temper sentiment by diverting liquidity toward the fixed income market.
Afrinvest
