Nigeria’s Economic Stability Improves in Q1, but Rising Costs Threaten Outlook — CPPE

Nigeria’s economy showed signs of improving stability in the first quarter of 2026, but rising costs, geopolitical tensions and political risks could undermine progress in the months ahead, the Centre for the Promotion of Private Enterprise (CPPE) has said.

In a policy brief issued on Sunday, April 5, its Chief Executive Officer, Dr Muda Yusuf, said the economy is seeing “a transition towards relative macroeconomic stability,” driven by foreign exchange reforms, tighter monetary policy and improving key indicators.

However, he warned that “these improvements continue to coexist with significant headwinds,” including high living costs, elevated energy prices, insecurity and structural constraints.

Stability Gains Strengthen Confidence

According to the CPPE, inflation has eased significantly, dropping from over 24 per cent in early 2025 to about 15 per cent by February 2026.

The naira has also stabilised within a band of ₦1,340 to ₦1,430 per dollar, while external reserves rose above $50 billion.

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The Centre noted that growth remained positive, supported by recovery in the oil sector and expansion in non-oil activities, with business activity staying above the growth threshold.

“These developments point to a transition towards relative macroeconomic stability—an essential foundation for restoring investor confidence,” Yusuf said.

High Costs Continue to Weigh on Economy

Despite the improvements, the CPPE noted that businesses and households are still struggling with high costs, particularly in energy and transportation.

“The most pressing challenge remains the high-cost environment,” Yusuf said, adding that energy expenses, driven by reliance on diesel and petrol, have become a major burden for businesses.

He also highlighted insecurity and weak consumer demand as key constraints, stressing that “while macroeconomic indicators are improving, microeconomic conditions remain fragile.”

Q2 Outlook Faces Rising Risks

Looking ahead to the second quarter, the CPPE said the outlook is cautiously optimistic but faces significant risks, especially from rising global oil prices linked to Middle East tensions.

The group warned that while higher oil prices could boost government revenue and foreign exchange inflows, they could also drive up domestic fuel costs and reverse recent gains in inflation.

“This cost pass-through effect poses a significant threat to the fragile disinflation process,” Yusuf said.

The exchange rate is expected to remain relatively stable, though risks of volatility persist, while economic growth may slow due to high costs and weak demand.

Policy and Political Risks in Focus

The CPPE also raised concerns about limited room for further monetary easing, warning that additional tightening could hurt growth.

It noted that inflation is largely driven by costs rather than excess demand, meaning higher interest rates may not address the root causes.

It further highlighted rising political activities ahead of the 2027 elections as a risk to policy focus and reform momentum, alongside concerns over budget implementation and fiscal discipline.

Call for Caution

Yusuf said the economy is at a critical point, with stability gains needing to be protected amid growing uncertainties.

“The outlook for Q2 remains cautiously positive but increasingly uncertain,” he said, warning of possible stagflation if rising energy costs persist.

He urged policymakers to focus on sustaining stability, addressing structural challenges and protecting vulnerable groups, while advising businesses to prioritise efficiency, cost control and risk management.

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