Dare Babalola
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, has said Nigeria’s economy recorded notable improvements in macroeconomic stability in the first quarter of 2026.
He, however, warned that persistent cost pressures and rising geopolitical tensions could threaten gains in the months ahead.
In a policy brief released on Sunday titled “Q1 2026 Economic Review and Q2 Outlook: Macro Stability Gains Amid Persistent Cost Pressures and Rising Geopolitical Risks,” Yusuf noted that the economy is showing signs of recovery, even as structural challenges continue to weigh heavily on businesses and households.
He said, “The Nigerian economy in the first quarter of 2026 reflected a blend of improving macroeconomic stability and persistent structural constraints.”
According to him, recent reforms—particularly in the foreign exchange market and tighter monetary policy—have contributed to a more stable economic environment.
“Evidence of a more stable macroeconomic environment is increasingly evident, underpinned by the cumulative gains from foreign exchange reforms, a sustained period of monetary tightening, and the gradual normalization of key economic indicators,” he added.
Yusuf highlighted a steady decline in inflation, noting that headline inflation dropped significantly from over 24 per cent in early 2025 to about 15.06 per cent by February 2026. He explained that the moderation reflects tighter monetary conditions, improved exchange rate stability and easing supply-side pressures.
He also pointed to improved exchange rate stability, with the naira trading within a relatively narrow band during the quarter, alongside a rise in external reserves above $50 billion.
According to him, these developments signal a transition towards relative macroeconomic stability, which is critical for restoring investor confidence and improving growth prospects.
Despite the gains, Yusuf stressed that the real economy remains under pressure, particularly due to high energy and transportation costs, insecurity, and weak consumer demand.
“The most pressing challenge remains the high-cost environment transportation and energy costs remain elevated, significantly eroding household purchasing power,” he said.
He added that businesses continue to grapple with unreliable electricity supply, forcing many firms to depend on expensive alternatives such as diesel and petrol generators.
“With fuel prices still elevated energy has become one of the largest components of production and logistics costs across sectors,” Yusuf noted.
He further warned that insecurity in key agricultural regions is worsening food supply challenges and dampening rural economic activity, while also undermining investment and logistics efficiency.
According to him, this situation highlights a disconnect between improving macroeconomic indicators and fragile microeconomic realities.
Looking ahead to the second quarter, Yusuf said the outlook remains cautiously optimistic but increasingly uncertain due to both domestic and external risks.
He warned that the current disinflation trend could easily be reversed by global developments, especially rising crude oil prices linked to tensions in the Middle East.
“The current disinflation trajectory remains fragile and susceptible to reversal,” he said, adding that the surge in oil prices above $100 per barrel carries significant inflationary implications.
While higher oil prices could boost government revenue and foreign exchange inflows, Yusuf cautioned that the negative impact on domestic fuel costs and business operations could be severe.
“This cost pass-through effect poses a significant threat to the fragile disinflation process, potentially reversing recent gains in price stability,” he said.
On growth, Yusuf projected that the economy would continue to expand, but at a slower pace due to mounting cost pressures and weak consumer demand.
“Economic growth is expected to remain positive in the near term, but the momentum is likely to moderate amid a confluence of downside risks,” he stated.
He also raised concerns about a possible stagflation scenario, noting that persistent inflation combined with weak growth could create additional macroeconomic challenges.
“The risk of a stagflationary environment is becoming more pronounced, as cost pressures persist alongside fragile growth dynamics,” Yusuf said.
On monetary policy, he advised caution, warning that further tightening by the Central Bank could worsen the situation.
“Such a stance would be counterproductive, given the fragility of current growth dynamics,” he said.
He explained that the current inflation trend is largely driven by cost factors such as energy prices and exchange rate effects, rather than excess demand, making aggressive tightening less effective and potentially harmful to investment and credit growth.
Yusuf also identified rising political activities ahead of the 2027 general elections as a key risk to economic stability. He warned that increasing political distractions could slow reform momentum and weaken policy focus.
“This raises concerns about policy distraction, as economic management may increasingly compete with electoral considerations,” he said.
On fiscal policy, he expressed concern over the implementation of the ₦68 trillion 2026 budget, citing weak revenue performance, possible delays in capital releases, and growing political influence on spending priorities as major risks. He warned that fiscal discipline could weaken as political pressures intensify.
Advising businesses and investors, Yusuf urged a shift towards resilience, efficiency and risk management in navigating the current environment.
He stressed the importance of cost control, energy efficiency, and investment in alternative energy sources, as well as prudent foreign exchange and liquidity management.
In conclusion, Yusuf described the first quarter of 2026 as a turning point for Nigeria’s economy but cautioned that the gains remain fragile.
“The first quarter of 2026 represents a significant inflection point marked by notable gains in macroeconomic stability,” he said.
“However, these gains are tempered by persistent structural challenges and mounting welfare pressures.”
He added that sustaining reforms, addressing structural bottlenecks, and protecting vulnerable populations will be critical to maintaining stability, especially as geopolitical tensions and domestic political dynamics continue to shape the economic outlook.
