Nigeria’s Economic Outlook: A Path Towards Recovery Amidst Persistent Challenges
Nigeria’s economic landscape is projected to navigate a complex trajectory in the coming years, marked by a gradual easing of inflationary pressures, modest economic growth, and persistent structural challenges. The NESG-Stanbic IBTC Business Confidence Monitor report forecasts a decline in the inflation rate to 27.1% by December 2025, offering a glimmer of hope for businesses and consumers grappling with prolonged economic hardship. This positive projection is attributed to the anticipated impact of structural reforms, despite the lingering hurdles that continue to impede economic progress.
The report acknowledges the significant impact of inflationary pressures, particularly in 2024, driven by fuel subsidy removal and foreign exchange market liberalization. These measures, while aimed at long-term economic stability, have contributed to a surge in expenses across various sectors. However, the BCM anticipates a gradual easing of these pressures throughout 2025. While inflation is expected to remain elevated for the first nine months of the year, a significant decline is projected in the final quarter, bringing the year-end rate to the forecasted 27.1%. This decline is predicated on the stabilization of petrol prices, along with positive developments in exchange rates, fiscal deficits, and food supplies.
The anticipated easing of inflation is expected to influence monetary policy, potentially leading the Central Bank of Nigeria (CBN) to adopt a more accommodative stance towards the end of 2025. This could involve reducing interest rates to stimulate economic activity and encourage investment. While this shift in monetary policy could provide a much-needed boost to the economy, its effectiveness will depend on the overall stability of the macroeconomic environment.
A modest recovery in business performance was observed in December 2024, attributed largely to seasonal festive demand. The Current Business Performance Index, a measure of economic activity across sectors, registered its first positive reading since September 2024, signaling a slight uptick in economic momentum. However, this recovery was uneven across sectors. Agriculture emerged as the strongest performer, driven by robust harvest activities and increased demand for agricultural produce. Non-manufacturing industries also demonstrated resilience, while the manufacturing, trade, and services sectors continued to face significant headwinds.
Despite the slight improvement in current business performance, the outlook for future business conditions remains cautiously optimistic. The Future Business Expectation Index, reflecting business sentiment towards future economic prospects, indicated a slight decline in optimism compared to the previous month. This tempered optimism stems from a combination of factors, including high operational costs fueled by inflation and exchange rate volatility, persistent power outages, insecurity, limited access to financing, and cumbersome tax regulations. These challenges continue to weigh heavily on businesses, hindering investment and expansion plans.
While access to credit improved marginally, the high cost of borrowing remains a significant barrier to investment. The surge in the Cost of Doing Business Index further underscores the mounting pressures faced by firms operating in the Nigerian economy. These structural challenges highlight the need for sustained policy reforms aimed at improving the business environment, promoting investment, and fostering sustainable economic growth.
Despite these challenges, the report maintains a cautiously optimistic outlook for economic growth in 2025. Nigeria’s GDP is projected to grow by 3.5%, a slight improvement from the estimated 3.2% growth in 2024. This growth is expected to be driven by improved performance in key sectors, particularly agriculture, manufacturing, and non-manufacturing industries. The anticipated easing of inflation and stabilization of exchange rates are also expected to contribute to increased consumer spending and overall economic activity. However, the realization of this growth projection hinges on the successful implementation of policy reforms and the mitigation of persistent structural challenges. The government’s commitment to addressing these issues, along with the resilience of the private sector, will be crucial in navigating the path towards sustained economic recovery and achieving long-term prosperity. The interplay of these factors will determine the extent to which Nigeria can capitalize on its economic potential and overcome the obstacles that impede its progress.
