Coming into 2023, at least a third of global economies was expected to record a recession owing to tight monetary policies implemented across the globe. This expectation has largely been reflected in different countries as output growth in major economies like the USA and UK has been sluggish, while the Eurozone recorded a contraction. Inflation rates across countries
have also remained higher than most monetary authorities target range, spurring a continuation of the rate hike cycle, though broadly at a less aggressive pace. Unexpectedly, the first half of 2023 also heralded the financial services sector crisis which rocked financial institutions like Credit Suisse. The burning question of how long the financial crisis would last and
how far reaching the effect will be thus continued to bear on investors.
In Sub-Saharan Africa, inflationary pressures, depreciating currencies, worsening debt burdens and poor fiscal strength remained at the centre stage of discussions. Declining commodities prices has also been a pain point for exporters like Nigeria and Angola. Thus, both the IMF and World bank have forecasted economic growth in the region to decline for the second consecutive year.
On the domestic front, economic growth in H1:2023 was majorly impacted by the poorly implemented Naira redesign policy which led to a currency crisis and cash crunch. Monetary policy also remained contractionary as the campaign against rising inflation continued. Foreign investors continued to hold back for the most part on grounds that the economic environment has remained weak and the country is unattractive as an investment destination.
The inauguration of a new administration whose tough start seems to signal a willingness to address some necessary economic pain points (like the fuel subsidy bill) has however sent some positive signal to domestic and foreign investors. We expect output growth to remain positive in 2023 though lower than 2022. We also opine that the monetary policy authority is likely to consider other tools to control inflation (which is expected to further increase) asides the monetary policy rate.
In forming our outlook for financial markets, we considered activity levels in the primary and secondary fixed income market, the macroeconomic environment, foreign portfolio investments and the new administration’s expected policies. We expect the equities market to remain positive in H2:2023, though with pockets of profit taking activities. System liquidity should remain a major factor in determining the direction of fixed income yields for the rest of the year.
Kindly find attached.
Meristem 2023 Half Year Outlook – Tough Start, Bumpy Road, Propitious End – July 2023
