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‘Expect return to normalcy, tougher policy choices’

Continuing from a year with so much uncertainties about life, politics and markets, 2021 holds the promise of a return to a semblance of certainty…

Continuing from a year with so much uncertainties about life, politics and markets, 2021 holds the promise of a return to a semblance of certainty and a vaccine aided V-shaped global economic recovery, the Chief Executive Officer of Sigma Pensions, Dave Uduanu has said.

In response to the COVID-19 pandemic, national governments adopted a cocktail of strict movement restrictions and border lockdowns in a bid to limit the spread of the virus, reduce burdens on stretched healthcare systems and contain the human toll.

These measures were accompanied by large scale economic stimulus programmes to help households and businesses cope with the economic impact of movement restrictions.

However, Uduanu in a forecast report said:  “In 2021, the focus will shift to how quickly countries roll-out vaccination programmes to immunise populations from COVID-19.”

Amid an improved outlook for oil prices, Nigeria continues to grapple with the aftershocks of the coronavirus recession as external and fiscal imbalances propagate negative shocks across the exchange rate and inflation channel.

Uduanu said the resulting macroeconomic turmoil will require a return to credible policy settings, implying that more than ever before, the direction of policy responses will be crucial.

He also affirmed that Nigeria will exit recession, but external account imbalances pose downside risks to the Naira as well as higher inflation on account of food, electricity and fuel price pressures.

“We expect Nigeria’s economy to experience a V-shaped bounce back from a recession in 2020 as the removal of most COVID-19 restrictions should benefit the non-oil sector where the restrictions hurt activities badly.”

He said oil output is likely to remain in recession as compliance with OPEC+ curbs restrains oil production to 1.7-1.8mbpd, a development likely to remain in place until H2 2021.

Uduanu also noted that in 2020, the liquidity fallout from CBN’s decision to split domestic treasury bill markets spurred a rally across Naira assets.

“In 2021, we think financing the projected fiscal deficit alongside CBN’s recently introduced CBN Special Bills could help drain the remaining portion of the large liquidity overhang.

“We expect the rebalancing across Nigeria’s financial markets to run its course over 2021, implying less-liquid conditions.”

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