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MoneyCentral Leading Economic Indicators Forecast 3.8% GDP Growth in Q2

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MoneyCentral’s proprietary index of Leading economic indicators (LEIs) point to strong year on year (YoY) growth in the second quarter (Q2) of 2021, which should see Nigeria posting above trend growth of 3.8 percent year-on-year in Q2 (April – June), 2021.

The strong uptick in growth forecast by our model is in part due to favourable base effects as growth collapsed to negative (-6.1%) a year ago in Q2, 2020 due to the negative lockdown effects of the coronavirus pandemic.

The National Bureau of Statistics (NBS) is set to release the Q2, GDP figures this week on Thursday, August 26.

The LEIs signal a gradual return to growth for the Nigerian economy, amid a need for economic policies to accelerate growth above the 2 percent per annum trend.

A leading indicator is any measurable or observable variable of interest that predicts a change or movement in another data series, process, trend, or other phenomenon of interest before it occurs.

Leading economic indicators are used to forecast changes before the rest of the economy begins to move in a particular direction and help market observers and policymakers predict significant changes in the economy.

Of the 10 (nine) indicators, 8 were positive and indicating expansion or accelerating economic activities compared to a year ago, while only (2) are negative, MoneyCentral’s analysis shows.

Oil Prices

Oil prices are up some 76 percent compared to the year ago period. Oil is trading around $71 per barrel today, compared to $40.27 per barrel in June 2020. Oil is the lifeblood of the Nigerian economy helping to generate significant petrodollars used to facilitate trade and maintain a positive balance of payments.

Lower oil prices often pass through to the wider macro-economy from shortages in foreign exchange and violent devaluations which often disrupt private sector businesses.

The steady uptrend in oil prices are positive for the Nigerian macro-economy as a whole.

Nigerian Stock Market Index

The NGX- All Share Index which is a broad measure of stock market performance is up some 53.8 percent in the period.

Stocks are leading indicators as their prices are usually a reflection of expected future profits.

Company Income Tax

The Company Income Tax (CIT) component of our LEIs is an important look into the health of the private sector in Nigeria.

Private businesses generate about 87 percent of economic output in the country with government spending (3-tiers) making up the rest.

CIT for the period (Q2 2021) were up 17.4 percent, compared to the year ago period, a signal of the increased profitability of firms as they came out of the coronavirus induced slump in the economy.

PMI (Manufacturing)

Economists closely watch the Purchasing Managers Index (PMI) in order to predict growth in a nation’s gross domestic product (GDP) due to changes in the demand for materials from corporations.

The manufacturing PMI printed at 45.55 in June 2021, compared to 41.1 percent in June 2020. While both readings suggested a contraction (below the 50-index point mark), it clearly shows a lower level of contraction in the current (Q2 2021) quarter.

External Reserves

Oil prices are up some 76 percent in the period, however external reserves are down by 8.35 percent to $32.78 billion, which looks like some kind of anomaly at first glance.

However, we believe that the CBN has been mostly doing the heavy lifting by intervening in the foreign exchange market to stabilize the naira and clear backlogs of FX demand, which has thus put some strain in its ability to accrete its dollar reserves.

Since portfolio and FDI flows are largely underweight Nigeria due to the somewhat opaque FX market, it’s no surprise that reserves are not growing with the rise in oil prices.

While this indicator is negative it is not as bad as it looks if the drawdown in reserves has helped Nigerian companies and small businesses to meet their dollar demand needs.


Central Banks, economists and markets can’t seem to make up their minds on which bogeyman is worse for the economy, inflation or deflation.

In the West a healthy bout of taper tantrum has ensued in recent months on account of the Federal Reserve’s plans to reduce asset purchases amid a steady rise in inflation which it for now refers to as ‘transitory’.

While inflation is good for nominal increase in GDP, too much of it is negative for real GDP calculations which strips out increase in prices (GDP deflator).

Therefore, inflation which rose by 17.75 percent in June 2021 is negative for our higher real GDP forecasts.

Private Sector Credit

Credit to the private sector surged by 10.45 percent in June 2021, to N32.63 trillion data from the CBN shows.

This is mostly as a result of the CBN’s loans to deposit ratio (LDR) regulations and direct intervention funds it has also provided.

Rising credit flows to the private sector as non-performing loans ratio remain low is positive for growth as it is a signal of a healthy banking system.

The Non-Performing Loans ratio (NPLs) stood at 5.70 per cent in June 2021, an improvement, compared with 6.4 per cent in June 2020.

M3 (Broad Money Supply)

The rise in Broad money supply (M3) mirrors the increase in private sector credit as it rose by 10.1 percent in the June 2021 period compared to a year ago.

Money supply refers to all the currency and other liquid instruments in a country’s economy.

In general, when the GDP growth rate shows rising economic productivity, the value of money in circulation increases. This is because each unit of currency can subsequently be exchanged for more valuable goods and services.

Nominal GDP often tends to rise with the increase in money supply.

Exchange Rate (USD/NGN)

The value of the naira fell by approximately 6.55 percent between June 2020 and July 2021, at the Investors and Exporters (I&E) FX window, data from the FMDQ shows.

On the surface it is a negative indicator but the currency probably needed to adjust lower to compensate for the appreciating Real Effective Exchange Rate (REER) and lower dollars available in the Nigerian economy.

10-Year Bond Yields

Benchmark 10-year bond yields increased by 2.62 percentage points between June 2020 and June 2021, helping to steepen the yield curve, which is a positive indicator for growth.

In economics and finance, the Yield Curve is a graphical representation of the interest rates on debt for a range of maturities.

It shows the yield an investor is expecting to earn if he lends his money for a given period of time, and while the curve may take different shapes at different points in the economic cycle, it is typically upward sloping.

Economists use the yield curve as a leading economic indicator, especially when it shifts to an inverted shape, which signals an economic downturn, as long-term returns are lower than short-term returns.

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