SWITZERLAND, JULY 09 – A report by pan-African investment banking and financial services group, United Capital Plc, on Tuesday indicated that the naira’s official exchange rate may fall to N430 to the dollar by the end of 2020.
In its economic forecast for the second half of the year titled, “Nigeria H2 2020 outlook report: Up in the air,” the firm analysed the state of the Nigerian economy and outlined future projections informed by domestic and global events.
“On the exchange rate, we believe the odds are in favour of a further naira adjustment, which may take the official rate to N410/$ to N430/$ by year-end.
“However, we believe the Central Bank of Nigeria will continue to defend the value of the local unit for as long as it can,” the report read.
The group stated that the COVID-19 pandemic worsened currency market dynamics in H1-2020 and led to an adjustment in the exchange rate by the CBN.
Domestic and external economic activities were also adversely impacted as domestic economic growth in the first quarter of 2020 slowed to 1.87 percent.
The GDP growth figure for Q2 2020 would likely assume a negative figure despite the series of stimulus packages provided by the authorities to cushion the impact of the coronavirus pandemic on businesses and households.
According to the report, since the current crisis is supply-side heavy (restriction of movement and business shutdown), the demand-side responses by both the fiscal and monetary authorities (liquidity injections) will not be enough to prevent an economic contraction in the short term.
“However, the palliatives and reforms that are being announced may reduce the probability of sliding into a deep recession or quicken recovery once the incidence rate of the pandemic begins to drop and the economy is fully re-opened.
“Overall, the Nigerian economy may enter a technical recession by Q3 2020 (after two consecutive quarters of contraction in Q2 and Q3 2020), with a chance of early recovery by Q4 2020 or Q1 2021,” the report read.
United Capital lowered its real GDP growth forecast for 2020 from 2.3 percent to -2.69 percent. It added that the above projections were at huge risk due to the possibility of a second lockdown if the virus continues to spread.