Cordros Economic Outlook for 2023 Reveals High Inflation, Volatile Equity Market 

Cordros Capital Limited has predicted high inflation and volatile equity market in the Nigerian economy for 2023. 

At a press conference in Lagos Monday, with the theme ‘Charting Through a Pervasive Slowdown'” the firm disclosed their market and economic expectations for the year and their advice on the best investment opportunities.

The Managing Director of Cordros Securities Ltd, Christian Orajekwe, and Head of Research and Strategy, Jolomi Odonghanro, alongside his associates Opeoluwa Oluwa and Abdulazeez Kuranfa provided an in-depth overview of the global and domestic macroeconomy.

They disclosed the possibility of high inflation and a volatile equity market in 2023. 

For the global macroeconomy, they revealed that in 2022, crude oil prices reached a 14-year high of $127.98/bbl and were underpinned by the Russia/Ukraine crisis, COVID-19 restrictions in China and general global economic conditions. 

They foresee that oil demand will grow at a slower pace in 2023 relative to 2022. For the Nigerian economy, in retrospect, 2022 was marked by a 22.67% y/y decrease in oil GDP as crude oil production fell to a new record low (1.20mb/d), while the non-oil GDP grew at a slower pace for the second consecutive quarter that year. 

The team also disclosed that there is a high possibility that in 2023, the oil GDP will increase by (+12.40% y/y) on favourable base effects and higher crude oil production and the non-oil sector by +2.45% y/y. 

However, even as the non-oil GDP remains positive, it may weaken compared to the prior year. This will be due to tighter credit conditions, flood-induced slower growth pace of agriculture’s GDP, elevated inflationary pressures and spillover impact of the pervasive global slowdown.

Going further, Odonghanro presented the headline inflation base, bull and bear cases. 

For the base case, he stated that PMS prices might rise to N250.00/litre; the currency depreciate to N455.00/$ at the IEW, and electricity tariff hike to 10.5% with a full-year outlook inflation average of 18.56% y/y (2023FY average). 

For the bull case, he stressed that PMS prices might remain at N190.00/litre; currency stable at N445.00/$ at the IEW and no progressive hike in electricity tariff with a full-year outlook average of 17.70% y/y (2023FY average). 

Meanwhile, for bear case, he foresees that PMS prices might rise to N420.00, currency depreciate to N465.00/$ at the IEW; and electricity tariff hike to 20.5% with a full year outlook average of 20.99% y/y (2023FY average).

According to him, “The naira remained pressured against the US dollar, given the limited FX supply at the official windows amid increased FX demand.

“The average monthly inflows into the IEW in 10M-22 settled at $1.20 billion – 58.6% lower than the average monthly inflows in 2019FY ($2.90 billion). 

“FX liquidity conditions at the IEW remained low as FPIs remained on the sidelines given a lack of reforms in the FX framework, higher global interest rates and weak macroeconomic narratives.”

In their presentation, the specialists also disclosed their H1-23 monthly projections with CBN’s oil inflows at $706.32 million monthly average and non-oil inflows at $2.16 billion. 

They also revealed what might be the CBN’s average monthly outflows at $3.09 billion.

It was discovered that in line with their 2022 expectations, the Monetary Policy Committee (MPC) was accommodative in the first two meetings of the year. 

However, it switched to a hawkish stance in May as external pressures mounted amidst increased inflationary pressures.

Since switching monetary policy stance in May, the CBN Governor, Godwin Emefiele, has consistently said that the MPC would maintain its interest rate hikes until there is a deceleration in the inflation path. 

As a result, inflationary pressures were expected to start decelerating from December 2022 and on an average of 18.56% y/y in 2023FY. 

In addition, growth is likely to weaken compared to 2022E levels. Overall, they expect the committee to increase the key policy rate by additional 100bps in either the first or second meetings of 2023FY. 

After that, they would expect the committee to keep the MPR unchanged as the risks of overtightening take centre stage at the meetings, more so that global central banks are expected to have ended their interest rate hiking cycle by then.

Also speaking, the Associate, Research and Strategy, Mr. Opeoluwa Oluwa, pointed out that: “In line with our expectations for 2022, the FI market was largely volatile given the hawkish stance adopted by the monetary policy authority and the demand and supply imbalance in the domestic market amid the inability to utilize its external debt programme.” 

He stressed that: “For 2023, the fixed-income market is expected to remain volatile. We expect the direction of market activities will be swayed by global monetary policy and external debt markets, demand and supply dynamics, domestic monetary policy expectations, the electioneering process, and fiscal authorities’ management post-election. Overall, we estimate that the average Treasury bills and bonds yields will increase in the year and settle at c.10.8% and c.15.5%.

“We expect the performance of the Nigerian equities market to be positive in H1-23 following investors’ positioning for 2022FY results ahead of positive corporate earnings and re-investment of dividends amid higher yields in the fixed-income market. We expect market sentiments to be shaped by a combination of the electioneering process/outcome of the 2023 elections, implementation of market-friendly policy or reforms, the direction of monetary policy in Nigeria and the impact on the fixed income market and stock-specific events.” 

The press conference revealed high-level insights into 2023, and journalists engaged in an extensive panel discussion with the Cordros Capital team.  

It was agreed that with the 2023 Full Year Outlook, Nigerians would be able to chart through a pervasive slowdown this 2023.

Cordros Capital Limited is a leading Financial Services group, licensed as Broker-Dealers, Issuing House, Fund/Portfolio Managers, Trustees, and Registrars by the Securities & Exchange Commission (SEC). 

It prides itself in being a reliable growth partner.