The situation in Nigeria has deteriorated significantly over the past month. The latest national accounts figures show that the economy contracted by 0.4% y/y in Q1, a much worse outcome than had been expected by either us or by the Bloomberg consensus. And this figure does not reflect the hit to economic output caused by the disruption of oil output in May. Attacks by militants in the Niger Delta have disabled a number of key oil facilities, cutting oil output by over a third. On a more encouraging note, the Central Bank of Nigeria has finally admitted the failure of its current FX regime and pledged to move to “more flexible” system. But it remains unclear how or when this transition will take place. A more flexible system will almost certainly cause the naira to weaken against the US dollar. This will help to rebalance the economy over the longer term, but in the near term it will add to mounting inflationary pressures. Consumer prices rose by 13.7% y/y in April.
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