On a global scale, expectations regarding sustaining the economic growth witnessed in the prior year, though at a slower pace, were dashed, no thanks to Russia’s invasion of Ukraine. This inadvertently led to many nations across the globe experiencing record-high inflationary pressures and the monetary policy tightening by global central banks that followed. Also, the zero-covid policy in China, remained an impediment to growth. Against this backdrop, major economies across the world witnessed a slowdown in economic activities as the cost-of-living crisis, exacerbated by the surge in energy and food prices, combined with aggressive policy moves by monetary authorities, weighed on economic activities. 

In 2023, the uncertainty around economic growth performance will be more pronounced owing to the growing risk of a global recession as monetary and fiscal tightening are expected to come full circle in 2023. More so, the geopolitical tensions, with no end in sight or peace talks in motion, remain a headwind to global growth. According to the International Monetary Fund (IMF), global growth is expected to slow to 2.70% in 2023, with a 25% probability that it could fall below 2.00%. 

The local economy remained resilient as growth was maintained through the year as of Q3 2022, still on the back of the non-oil sector’s impressive performance. The oil sector maintained an underwhelming performance as theft and vandalism remained the order of the day. Overall, we anticipate GDP growth to be sustained in the year at around 3.00% driven by steady positive movement in the non-oil sector with remarkable support from the ICT sector. However, major downside risks to growth include the possible removal of fuel subsidy, unabating insecurity concerns, rising interest rates, and FX illiquidity.

Following suit with the global economy, Nigeria’s inflationary pressures worsened in 2022, starting the year at 15.60% and settling at 21.47% as of November. Going into 2023, we expect to see continued elevated consumer prices as the supply-driven factors linger. 

For Foreign exchange, while the rising oil production volume is slightly positive for oil earnings and, by extension, the reserves, we still think increased subsidy payments should reduce oil inflows, though the likely suspension of this cost in the second half of the year should be positive for reserves, as we also expect the Dangote Refinery to begin operations in 2023, which may bode well for FX savings and inflows.

In the fixed income space, we expect interest rates to remain elevated on the back of higher inflation expectations, the restrictive stance of global monetary authorities and our apex bank, election uncertainties and outcome, and the steep borrowing plans of the fiscal authorities. While we expect liquidity levels to determine the direction of yields in this space, our base-case scenario is a tepid rise in interest rates on a y/y basis.

The equities market defied the odds in 2022, staging an upbeat performance irrespective of the risk-off sentiments that rattled the global equities market. On a balance of factors, despite the challenging economic environment and mounting political risk, we are cautiously optimistic of a positive turnout in 2023. However, the big elephant in the room, the 2023 general elections, remains a major concern. Irrespective, barring any damning post-election outrage, we expect the significant dominance of local players, resilient earnings performance, and tepid movement in fixed income yields to bode well for equities this year.

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