At the start of the year, the global economy was projected to extend the strong post-pandemic recovery (2021: 6.1%) with a baseline growth rate of 3.6% in 2022. However, this bullish outlook was dented by the multifaceted negative spillovers from the ongoing war in Ukraine and aggressive monetary policy tightening by global systemic central banks targeted at curbing the runaway inflation. On the back of these developments, the IMF in its October 2022 World Economic Outlook (WEO) report downgraded its global growth projection for 2022 to 3.2% – its third downgrade since the war in Ukraine began in February.
 
Chart 1: Global Economic Growth Forecast across Major Regions (2021 – 2023F) 

Source: IMF, Afrinvest Research
 
On the domestic scene, the combined effect of the year-long structural challenges, policy mismatch, and negative externalities have begun to taper the recovery momentum recorded in 2021. In Q3:2022, GDP growth slowed markedly to 2.3% from 3.1% and 3.5% in Q1 and Q2:2022, respectively. Noteworthy, inflationary pressure (average: 18.6%), public debt profile (up 18.7% to ₦67.8tn), and exchange rate crises (parallel market rate weakened 31.0% to ₦740.00/$1.00) all took a major leap in 2022 as Nigeria’s economic managers failed to optimise its human capital potential and favourable oil prices. We expect the factors to drag because of the political transition and the time it would take policy reforms (if any) by the incoming administration to manifest gains. Hence, we estimate a 3.3% GDP growth for 2022 and project a 3.0% growth for 2023. 
  
Chart 2: Debt Trajectory Under Nigeria's CEOs
 
Source: CBN, DMO, Afrinvest Research
 
In the equities market, bullish momentum dominated proceedings in H1:2022 (NGX-ASI gained 21.3%) to extend the trend from the prior year. Relatively low fixed-income yield, impressive corporate earnings, and attractive valuation of new listings topped the catalysts that supported the market performance. Although this trend was markedly hurt between July and November 2022 due to negative investors’ reactions to aggressive monetary policy tightening and the high inflation rate knock-on effect on corporate earnings, the bourse rallied 7.5% in December to close the year at 20.0% (Afrinvest projection: 19.1%). Looking ahead, we project a modest 7.3% return in 2023, driven by cautious trading amidst political transition and fiscal and monetary policy reforms.
 
Chart 3: The Local Bourse Performance in 2022 

Source: NGX, Bloomberg, Afrinvest Research
 
For the fixed-income market, yield momentum picked up noticeably in H2:2022 following four successive episodes of MPR rate hikes by the CBN which prompted the repricing of yields across the ends of the curve. We noticed that bond yields rose less steeply than the T-bills. This dynamic, we believe was due to the tight liquidity environment, CBN cum DMO’s market rate management in H1 amid aggressive front-loading of supplies, as well as sustained backdoor financing through Ways & Means facility. Looking ahead, we expect unfavourable external pricing conditions to keep the FG active in the domestic debt market in 2023. In the face of expected wide budget financing gaps relative to the depth of the local market, we do not rule out the possibility of continued W&M financing despite plans to securitize the W&M portfolio. Importantly, we expect monetary policy to be less aggressive in 2023 while inflation should soften, providing the basis for fixed-income yields to taper.  
 
Chart 4: Bonds Yields Rose less Steeply Than T-bills 

Source: FMDQ, CBN, Afrinvest Research 

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