Sigma Pensions Limited has projected the return of tight monetary policy and bearish fixed income and equities market in 2021.
The company which provides retirement planning, investment management and pension administration services to over 700,000 working Nigerians and retirees gave this projection in its outlook for the economy titled, “Nigeria 2021 Outlook: A return to normalcy, but tough policy choices lie ahead”
While expressing optimism of return to positive economic growth in 2021, the company also projected a return to economic growth, further weakening of the Naira and higher inflation rate in the year, citing weaker oil exports amidst resurgence in import demand, underwhelming 2020 crop harvest, border closures, higher electricity tariffs and petrol prices.
The company stated: “As with the global environment, we expect Nigeria’s economy to experience a V-shaped bounce back from a recession in 2020 as the removal of most COVID-19 restrictions should benefit the non-oil sector where the restrictions hurt activities badly.
“The recovery in growth is where the good news ends. We view the combination of still weak oil exports and resurgence in import demand pointing to large external imbalances over 2021.
“Given current policy settings around the exchange rate, we see limited options for financing the looming current account deficit and expect Naira weakness over the year.
“In 2020, the liquidity fallout from CBN’s decision to bifurcate domestic Treasury bill markets spurred a rally across Naira assets. In 2021, we think financing the projected fiscal deficit alongside CBN’s recently introduced CBN Special Bills could help drain the remaining portion of the large liquidity overhang.
“Accordingly, we expect the rebalancing across Nigeria’s financial markets to run its course over 2021, implying less-liquid conditions. Against this backdrop, we think the current bullish run across fixed income and equity markets will top out in the first half of the year, giving way for the emergence of bearish sentiments over the second half of 2021.”