Nigeria’s economy shows stability in Q1 amid high transport cost
The Centre for the Promotion of Private Enterprises (CPPE) has said that the Nigeria economy has shown macroeconomics stability in the first quarter of this year as inflation continued on a downward trajectory.
The recent report released by the CPPE on the performance of the economy in the first quarter highlighted a moderation in inflation, stabilisation of the naira and strengthen of foreign reserves as major contributor of economic consolidation during the period.
Managing Director of CPPE, Dr Muda Yusuf said that headline inflation, which exceeded 24 per cent in early 2025, moderated to 15.15 per cent in December 2025 and further eased to approximately 15.06 per cent by February 2026, reflecting the combined effects of tighter monetary conditions, improved exchange rate stability, and some easing in supply-side pressures.
He said the naira, which experienced substantial volatility during the reform transition period, stabilised within a relatively narrow band of about N1,340–N1,430 per dollar in the official market during first quarter of 2026.
This stability according to him has helped to moderate imported inflation and restore a measure of business confidence.
In his explanation, he said “External reserves strengthened considerably, rising above $50 billion in early 2026. “This improvement reflects stronger oil earnings, enhanced foreign exchange liquidity, and improved market confidence, thereby strengthening the capacity of monetary authorities to manage exchange rate volatility.
“Real Gross Domestic Products (GDP) growth stood at 4.07 per cent year-on-year in fourth quarter 2025, with full-year growth at 3.87 per cent supported by recovery in the oil sector and sustained expansion in the non-oil economy.”
He, however, said that business activity indicators also remained positive, with Purchasing Managers’ Index (PMI) readings consistently above the 50-point expansion threshold, adding that these developments point to a transition towards relative macroeconomic stability—an essential foundation for restoring investor confidence and improving economic growth outlook.
He further said despite the improvement in macroeconomics indicators, the real economy continues to face significant headwinds.
He further said that the most pressing challenge remains the high-cost environment, stressing that although food prices have shown some moderation, transportation and energy costs remain high, significantly eroding household purchasing power.
Yusuf noted that the welfare impact of earlier reforms—particularly fuel subsidy removal and exchange rate liberalisation have continued to weigh on citizens.
Listing some other structural constraints affecting the economy, he said the cost of capital remains high, noting that despite recent policy rate moderation, lending rates to the real sector remain elevated, constraining access to credit—particularly for SMEs.
He said owing to unreliable grid electricity, firms remain heavily dependent on gas, diesel or petrol generators and with fuel prices still elevated—and further pressured by ongoing Middle East tensions—energy has become one of the largest components of production and logistics costs across sectors.
Yusuf said the outlook for the second quarter 2026, reflects a combination of sustained macroeconomics momentum and rising downside risk, adding that the current disinflation trajectory remains fragile and susceptible to reversal.
He said the ongoing Middle East conflict has precipitated a sharp escalation in global crude oil prices, with benchmarks crossing the $100 per barrel threshold in recent weeks—developments with significant inflationary implications.
For Nigeria, he said the situation presents a classic dual-edged dynamic, stressing that On the upside, elevated crude oil prices are expected to bolster export earnings, strengthen foreign exchange inflows, and improve government revenue.
He, noted that the downside risks are immediate and far-reaching while higher crude prices transmit quickly into domestic fuel costs, with consequential increases in logistics, production, and operating expenses across the economy.
This cost pass-through effect poses a significant threat to the fragile disinflation process, potentially reversing recent gains in price stability, weakening real incomes, and further exacerbating the cost-of-living pressures facing households and businesses.
He said the Nigeria’s exchange rate expected to remain relatively stable in the second quarter of 2026 as the stability will be supported by improved reserve and foreign exchange liquidity.
Source: Blueprint
