Financial Derivatives Company Limited
May 26 â€”June 9, 2009 Volume 1, Issue 1
FDC Bi-monthly Economic & Business Update
Nigerian economic performance in Q2 2009 is expected to deteriorate relative to Q1 where a growth rate of 6.3% was recorded. Although there are no official growth rate projections, consensus growth estimate is between 4 â€“ 5%. This is below the 6.3% recorded in Q1 2009 and FGNâ€™s 2009 projection of 8%. The non-oil sectors, mainly agriculture, telecom and trade, will continue to be the drivers of growth but they will under-perform the oil sector in revenue terms.
Highlights: â€¢ Goldman issues upbeat crude oil price forecast for 2009 and predicts further ...view middle of the document...
Most banks have cut back on lending to the private sector as a result of toxic assets which are estimated at about N1.2trn or 20% of total bank loan. The credit crunch
Source: IMF 2009
A Financial Derivatives Company Publication
Volume 1, Issue 1
has been exacerbated by cuts in credit lines to Nigerian banks from foreign banks and the decline in government revenue. The EIU in its recent report estimates a
GDP growth rate of 2.7% in 2009. This is far below the CBN/
BOS projection of 8% in 2009. EIU based its forecast on oil production of 1.913mbpd and average oil price of $40pb.
A Financial Derivatives Company Publication : 7739831, 7798998, 2715414; Email: email@example.com; Website: www.fdc-ng.com
Volume 1, Issue 1
Oil markets - Maintain strong momentum hitting 2009 high
Crude oil prices surged above $70pb hitting a seven month high after the U.S reported fewer job losses than expected, reinforcing the renewed optimism that the worst of the global recession is over.
Oil price is expected to hover around the $65-$70pb range in the coming week as dollar weakness and increased demand for crude oil in China continues to lend support to oil prices.
Money Market - Rates rise as liquidity tightens
At the close of the week, all maturity average NIBOR rose to 18.66% p.a. from 14.33% p.a. due to cash outflows for foreign exchange and bonds purchases. The secured OBB was flat at 8% p.a. while overnight rate rose by 250 bp to close at 22.05% p.a. The call rate was up at 19.5% p.a. from 18% p.a. The rise in interest rates was also fuelled by the Apex bank clarifying that the 15% cap on deposits does not apply to inter-bank trading.
The dollarâ€™s drop over the past six weeks has boosted crude prices as investors buy commodities as an inflation hedge. Year to date crude oil has gained 35% but is 52% below its 2008 peak of N147pb.
In its recent report, Goldman Sachs raised its forecast price for crude by 31% to $85 pb for the end of 2009 and predicted further gains next year as demand rebounds and supplies shrink. Goldman said it expects an energy shortfall by the second half of next year as spare production capacity among members of the OPEC is unable to meet rising demand amid shrinking non-OPEC suppliers.
25% 23% 22% 20% 19% 17% 16% 14% 13% 11% 10% 8% 7% 5% Call
7 D NIBOR
30 D NIBOR
60 D NIBOR
90 D Nibor
The year to date average oil price of 49.80pb is 11% above Nigeriaâ€™s budget benchmark of $45 a barrel. Going by the recent trend, we project that oil price could average $70pb in 2009. At this price level, fiscal revenue is expected to reach $31bn, fiscal deficit will narrow to 2.8% of GDP while export earnings will rise by 38% to $74bn. We also expect Nigeriaâ€™s current account to turn from a deficit of $11.6bn to a surplus of $1.1bn while external reserves could climb to $50bn. The above projections are based on an average oil production of 1.95mbpd.