ARTICLE
2 August 2024

Financial Sector Outlook H1 – August 2024

Despite numerous global and domestic challenges, Nigeria's financial sector has demonstrated remarkable resilience throughout the first half of 2024.
Nigeria Finance and Banking

Introduction

Despite numerous global and domestic challenges, Nigeria's financial sector has demonstrated remarkable resilience throughout the first half of 2024. The country's economic landscape has been significantly shaped by fluctuating global trends and domestic events, which have collectively influenced financial policies and market trends. In the first half of 2024, Nigeria grappled with severe economic turbulence, characterised by insecurity, rapid depreciation of the Naira, high cost of living and soaring inflation rates.

These issues were exacerbated by the persistent gap between the supply and demand of foreign currency, frequent increase in the price of petroleum products due to removal of fuel subsidy and reduced agricultural output.

As Nigeria gears up to navigate and tackle the complex mix of economic dynamics in the latter half of 2024, stakeholders are eagerly looking forward to how the financial sector will shape up, drawing from the experiences of the past months. Key factors such as potential increases in minimum wages, commencement of oil refining at the Dangote refinery, ongoing fiscal challenges, and anticipated reforms will play critical roles in shaping the financial landscape. Economists project modest Gross Domestic Product (GDP) growth, supported by improved security in the oil and agriculture sectors, while inflation rates are expected to decline marginally.

The recent Nigeria Economic Outlook by PwC Nigeria1 highlights four key trends influencing the country's economic path this year, the trends include sectoral reforms, monetary policy, inflation and exchange rate dynamics, and fiscal reforms. The Economic outlook further stressed the importance of balanced fiscal reforms and coordinated monetary policies as the key indicators needed for sustainable growth.

This work provides a comprehensive exploration of the Nigeria's financial sector performance in the first half of 2024, along with a detailed outlook of the anticipated trends and regulatory developments expected to influence the second half of the year. Also, an initial foray into the key global outlook will be undertaken to provide clarity and direction to this work. Through this work, we aim to provide an understanding of the complexities and opportunities within Nigeria's financial ecosystem in 2024.

Overview of the Global Economy in the First Half of 2024 and Outlook for the Second Half of 2024

In the first half of 2024, the global economy showed resilience despite challenges mainly related to geopolitical issues and monetary policies. According to the "World Economic Situation and Prospects report2: June 2024 Briefing", a collaborative report by the United Nations Department of Economic and Social Affairs (UNDESA), in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions, offers a thorough analysis of global economic trends. Accordingly, the global economic outlook has improved since January 2024, with the world economy now projected to grow by 2.7 percent in 2024, up from the earlier forecast of 2.4 percent in 2023. The reason for this growth is associated with improved prospects in major economies like the United States, supported by strong labour markets, real income growth, declining inflation, and anticipated monetary policy easing by central banks.

Notably, the US economy continued to surpass expectations in its growth, even amidst high interest rates, and challenges in other major economies. Although real GDP growth dipped in the first quarter of this year due to decelerations in consumer spending, exports, state and local government spending, and a downturn in federal government spending. Remarkably, policymakers successfully steered the economy away from recession and made progress in curbing inflation towards the 2 percent target. The November 2024 election contest between former President Donald Trump and Vice President Kamala Harris will also play a key role in the economic direction of the US, thus, consideration is paid towards the economic policies of the next President of the US in further determining the economic direction of the US.

The European Union and the United Kingdom (UK) have also shown slight improvement this year, compared to their performance in 2023 due to tight financing and reduced fiscal aid in some EU countries. However, factors like decreasing inflation, strong wage growth, and planned rate cuts by the European Central Bank and the Bank of England are set to drive regional growth in the short term. The EU economy is set to make a modest comeback in 2024, with GDP growth expected to reach around 1 percent for the EU and slightly lower for the eurozone. This marks an improvement from the stagnation seen in 2023, although it still lags behind pre-crisis levels.

China's economic growth is forecasted to slow down to 4.8 percent in 2024 from 5.2 percent in 2023 mainly due to the subsiding surge in consumer demand post-pandemic. While there's anticipation of increased policy support for infrastructure and strategic sector investments, the property sector remains a significant concern for China's economy.

The growth outlook for the Least Developed Countries (LDCs) is expected to improve slightly from 4.2 percent in 2023 to 4.8 percent in 2024. However, debt sustainability remains a concern in many LDCs, with some countries facing debt distress. Landlocked developing countries, such as Afghanistan, Burundi, and Uganda etc. (LLDCs) are projected to maintain a growth rate of 4.7 percent in 2024, with geopolitical tensions impacting their economic prospects due to reliance on transit countries for trade routes. Small Island Developing States (SIDS) are anticipated to experience GDP growth rising from 2.4% in 2023 to 3.3% in 2024, driven by tourism recovery. Yet, challenges like natural disasters, geopolitical tensions, inflation, and high public debt pose risks to this optimistic outlook.

Developing countries like Angola, Argentina, Democratic Republic of Congo, Egypt, Ethiopia, Gambia, Ghana, Lebanon, Nigeria, Sierra Leone, Türkiye, and Zimbabwe, are grappling with high inflation due to ongoing balance of payments issues, currency devaluation, and passthrough effects. Additionally, inflation surged in the State of Palestine in early 2024, mirroring the challenging economic conditions in the Gaza Strip.

Most central banks of the world kept policy rates steady in the first quarter of 2024, monitoring actions by the US Federal Reserve and the European Central Bank. While some central banks, including those in Armenia, Brazil, and Hungary, executed rate cuts, others, such as those in Nigeria, Egypt, and Türkiye, continued with monetary tightening. However, high public debt levels and increasing interest expenses pose challenges for many governments. In Africa, governments are predicted to use over a quarter of their total public revenues to service debt in 2024. Fiscal consolidation efforts are underway in many regions to manage debt burdens more effectively.

As we move into the second half of 2024, the global economic outlook remains cautiously optimistic. Investors should be aware of several key factors including continued policy adjustments, sector-specific opportunities, geopolitical risks and debt and inflation concerns. Central banks' monetary policies and government fiscal measures will continue to play crucial roles in shaping economic stability and growth prospects. Investors are encouraged to closely monitor policy changes that may impact market conditions and investment returns.

Growth in sectors like technology, renewable energy, and infrastructure, particularly in emerging markets, presents investment opportunities. China's policy support for strategic sector investments and the recovery of tourism in Small Island Developing States are notable trends. Ongoing geopolitical tensions in the world such as the Russia – Ukraine, and IsraeliPalestine wars impact global trade routes, commodity prices, and investment flows. Thus, Investors should consider diversifying portfolios to mitigate risks associated with geopolitical uncertainties. High inflation and debt levels in many developing countries pose risks to economic stability. Investors need to assess the credit risk and economic policies of countries where they have exposure.

In summary, while challenges persist, the improved global economic outlook and strategic policy adjustments offer a mix of risks and opportunities for investors in the second half of 2024. Careful analysis and strategic positioning will be key to navigating the evolving economic landscape.

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Footnotes

1. Strategy & Part of the PWC Network, 'Nigeria Economic Outlook 2024: Navigating Economic Reforms'. Accessed on 1 st July, 2024.

2. United Nations (2024), 'World Economic Situation and Prospects: June 2024 Briefing, No 181'. Accessed on 1st July, 2024. 24.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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