Global Economy
According to the Bureau of Economic Analysis (BEA), the United States (US) economy grew slowly by 2.3% q/q in Q4-24 (Q3-24: +3.1% q/q). The deceleration primarily reflects the sharp slowdown in government spending (+2.9% q/q vs Q3-24: +5.1% q/q) due to lower expenditure on national defense (+4.7% q/q vs Q3-24: 13.9% q/q).
At the same time, private domestic investment (-5.7% q/q vs Q3-24: +0.8% q/q) contracted for the first time in seven quarters primarily due to weaker non-residential investments (-3.2% q/q vs Q3-24: +4.0% q/q) induced by the subdued investment in equipment. On the other hand, personal consumption remained strong (4.2% q/q vs Q3-24: +3.7% q/q) supported by increased spending on non-durable goods.
Overall, the United States (US) economy grew by 2.8% y/y in 2024FY (2023FY: 2.9% y/y). Looking ahead, we expect robust consumer spending and a resilient labour market to support overall economic growth in the near term. However, potential downside risks remain, including the possibility of a trade war stemming from US tariff hikes and potential output reductions linked to migration policies. Accordingly, the IMF projects the US real GDP will expand by 2.7% in 2025FY.
In line with market expectations (+2.5% y/y), the United States Personal Consumption Expenditures (PCE) price index pared by 10bps to 2.5% y/y in January (December: +2.6% y/y). The slowdown was primarily driven by weaker services expenditure (+3.4% y/y vs December: +3.8% y/y), despite the rebound in goods prices (+0.6% y/y vs December: -0.1% y/y) due to higher costs of nondurable goods (+1.6% y/y vs December: +0.6% y/y) and softer decline of durable goods expenses (-1.2% y/y vs December: -1.3% y/y).
Excluding food and energy prices, the PCE price index settled at 2.6% y/y (December: +2.9% y/y). That said, the PCE price index was flat on a month-on-month basis (December: +0.3% m/m). Although the data print signals a relief on price pressures, we highlight that consumer prices remain biased to the upside due to the uncertainties surrounding Trump’s proposed policies.
Global Market
Global equities were mostly negative this week as ongoing trade tensions weighed on investor sentiments. At the time of writing, US equities (DJIA: -0.4%, S&P 500: -2.5%) were on course to end the week lower, weighed down by renewed trade tensions, following President Trump’s announcement of a 25.0% tariff on European automobiles, along with plans to impose an additional 10.0% levy on Chinese imports and the confirmation of 25.0% tariffs on Canada and Mexico, set to take effect on March 4.
In contrast, European equities (STOXX Europe: +0.6%, FTSE 100: +1.1%) were poised to end the week higher, driven by optimism regarding defense stocks after the UK Prime Minister outlined plans to increase UK defense spending to 3.0% of GDP over the next decade. Additionally, strong earnings from Rolls Royce boosted market confidence after the engine-maker reported better-than-expected revenue and announced a GBP1.00 billion share buyback for 2025.
Meanwhile, Asian markets (Nikkei 225: -4.2%, SSE: -1.7%) closed the week lower, mirroring losses on Wall Street as investors also assessed a series of economic reports from Japan, including industrial production, retail sales, and Tokyo inflation data. Market participants also traded cautiously ahead of China’s upcoming “Two Sessions” meeting, where the government is expected to unveil its policy agenda for the year ahead. Lastly, the Emerging Market (MSCI EM: -2.0%) index closed the week lower reflecting losses in China (-1.7%), while the Frontier Markets (MSCI FM: +0.5%) advanced driven by gains in Vietnam (+0.6%).
Nigeria: Domestic Economy
According to the GDP report by the NBS, the domestic economy grew by 3.84% y/y in Q4-24 (Q3-24: 3.46% y/y), maintaining its growth trajectory. Parsing through the breakdown, the oil sector remained in positive territory, expanding by 1.48% y/y — a moderation from the previous quarter (Q3-24: 5.17% y/y) despite higher crude oil output (Q4-24: 1.54 mb/d vs Q3-24: 1.47 mb/d).
The slowdown is primarily attributed to a moderate decline in oil production compared to the same period in the previous year (Q4-23: 1.56mb/d). At the same time, the non-oil sector maintained its resilience, growing by 3.96% y/y (Q3-24: +3.37% y/y) as growth in services (+5.37% y/y vs Q3-24: +5.19% y/y) and agriculture (+1.76% y/y vs Q3-24: +1.14% y/y) sub-sectors neutered the slowdown in the Industries (+2.00% y/y vs Q3-24: +2.18% y/y) sub-sector.
We expect the broader economy to maintain a positive growth trajectory over the short to medium term. Specifically, we anticipate the oil sector to expand owing to reduced oil theft & pipeline vandalism and a gradual increase in oil investment which should support higher production levels (Q1-25E: 1.70 mb/d vs Q1-24: 1.54 mb/d). Similarly, we expect the non-oil sector growth to remain strong, supported by a gradual increase in consumer demand due to easing inflationary pressures and a relatively stable naira. Overall, we project the real GDP will expand by 3.43% y/y in Q1-25, with full-year growth rate of 3.85% y/y (2024FY: +3.40% y/y). We highlight that the GDP rebasing results could present an upside risk to our estimate.
Federation Accounts Allocation Committee (FAAC) disbursements to the three tiers of government in February (from the total revenue generated in January) increased by 19.5% m/m to NGN1.70 trillion (January: NGN1.42 trillion). The increased was due to improved collections from Value Added Tax (VAT), Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Excise Duty, Import Duty and Customs External Tariff levies (CET) Levies and despite the decline in receipts from Electronic Money Transfer Levy (EMTL) and Oil & Gas Royalties.
We estimate that the amount disbursed is 64.5% of the total gross revenue (NGN2.64 trillion) generated in the month, with the remaining balance allocated for transfer, intervention and refunds (NGN830.66 billion), and the cost of collection (NGN107.79 billion). Based on the stipulated sharing revenue formula, the FGN received NGN552.59 billion (January: NG451.19 billion), State Governments received NGN590.64 billion (January: NG498.50 billion), the Local Governments received NGN434.57 billion (January: NGN361.75 billion), while oil producing states received additional NGN125.284 billion (January: NGN113.47 billion) as derivation (13% of mineral revenue).
In the near term, we anticipate potential revenue improvements from two key areas: (1) a potential increase in domestic oil production, and (2) increased Company Income Tax (CIT) collections, driven by improving macroeconomic conditions. However, we note that the recent stability in the naira could lead to reduced exchange rate gains on foreign collections, which could tether the growth in overall FAAC disbursements.
Capital markets: Equities
The Nigerian equities market was broadly bearish this week, closing lower in three of the five trading sessions, as investors reacted to last week’s lower-than-expected inflation data, which triggered a selloff in banking stocks, Precisely, sell pressures on ETI (-12.4%) and GTCO (-2.9%) weighed on market performance, driving the All-Share Index (ASI) lower by 0.6% w/w to 107,821.39 points, with the month-to-date and year-to-date returns moderating to +3.2% and +4.8%, respectively.
Trading activity was mixed, as trading volume declined by 8.2% w/w, while trading value advanced by 3.2% w/w. Sectoral performance was broadly negative, as the Insurance (-4.6%), Banking (-3.1%), Industrial Goods (-0.5%) and Consumer Goods (-0.4%) indices recorded losses, while the Oil & Gas (+0.6%) index was the sole gainer of the day.
Looking ahead, we expect cautious trading, with market sentiment likely to be influenced by ongoing corporate earnings releases and dividend announcements.
Money Market and Fixed income
The overnight (OVN) rate declined by 550bps w/w to 27.3% as inflows from OMO maturities (NGN813.25 billion) and FGN bond coupon payments (NGN118.07 billion) outweighed debits for the FGN bond PMA (NGN910.39 billion). As a result, the average system liquidity improved, settling at a lower net short position of NGN388.14 billion (vs a net short position of NGN1.08 trillion in the previous week).
Next week, we expect the inflows from FAAC disbursements (NGN1.15 trillion) to saturate system liquidity, causing the OVN rate to decline.
Treasury Bills
In line with our expectations, the Treasury bills secondary market was bullish this week as investors continued to reprice yields downwards in line with market dynamics. Accordingly, the average yield declined by 125bps to 21.1%. Across the market segments, the average yield declined by 31bps to 19.9% in the NTB segment, while it declined by 244bps to 22.5% in the OMO segment.
Following our expectations of liquidity influx into the financial system next week, we expect this to drive demand for bills, causing yields to decline. Additionally, the DMO is scheduled to conduct an NTB PMA next Wednesday (March 5) with NGN650.00 billion worth of maturities on offer.
Bonds
Similarly, proceedings in the FGN bonds secondary market were bullish this week, reflecting investors’ reaction to the lower stop rates recorded at Monday’s FGN bond primary market auction. As a result, the average yield decreased by 94bps to 18.5%. Across the benchmark curve, the average yield decreased at the short (-167bps), mid (-86bps), and long (-72bps) segments, driven by demand for the MAR-2025 (-454bps), JUL-2034 (-113bps), and MAR-2036 (-104bps) bonds, respectively.
At Monday’s PMA, the DMO offered instruments worth NGN350.00 billion to investors through re-openings of the 19.30% FGN APR 2029 (Bid-to-offer: 2.3x; Stop rate: 19.20%) and 18.50% FGN FEB 2031 (Bid-to-offer: 7.8x; Stop rate: 19.33%) bonds. Total subscription level settled at NGN1.63 trillion (previous: NGN669.94 billion), with a bid-to-offer ratio of 4.7x (previous: 1.5x). The DMO allotted instruments worth NGN910.38 billion across the two tenors, resulting in a bid-to-cover ratio of 1.8x. We attribute this surge in demand to investors’ expectations that stop rates have likely peaked and are unlikely to return to these levels in the near term.
Over the medium term, we expect a moderation in yields consequent on the (1) anticipated monetary policy administration and (2) slower borrowing pace by the Federal Government.
Foreign Exchange
The naira appreciated by 0.1% to NGN1,500.15/USD at the Nigerian Foreign Exchange Market (NFEM) despite the absence of CBN intervention, which we attribute to reduced demand pressure amid declining FX reserves. Notably, the FX reserves level declined by USD241.50 million w/w to USD38.46 billion (27 February), marking the 7th consecutive week of decline. In the forwards market, the naira rates increased across the 1-month (+0.2% to NGN1,539.17/USD), 3-month (+0.5% to NGN1,607.09/USD), 6-month (+0.2% to NGN1,711.31/USD) and 1-year (+0.3% to NGN1,900.01/USD) contracts.
We expect FX liquidity to remain robust as a more efficient market and improved market confidence continues to support inflows from autonomous sources. The CBN is also expected to intervene in periods of high volatility, keeping the naira stable in the near term.
Cordros
