Fiscal policy in the driving seat
The 2017 budget proposals are still more expansionary than the previous year’s, set a heady target for capital releases and maintain the level of personnel costs. If the FGN is able to hit its revenue targets and implement its proposals, we will see a sizeable fiscal stimulus. We could have the rare bonus of a relatively fast passage of the budget.
An end to the recession
The economy is set to emerge from recession this year and grow by 2.0%. The fiscal stimulus will be the main driver, supported by a recovery in oil production and selective private investment. Beyond our forecast horizon, household consumption will recover, leading to an acceleration in growth.
Monetary easing on lower inflation
The monetary authorities are not equipped to counter both GDP contraction and rising inflation. Their task will be clearer when positive growth returns and inflation starts to slow on positive base effects. The next rate moves by the MPC should be downwards, in line with (or perhaps anticipating) steady declines in headline inflation.
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