The first experience by Nigerians of widespread power outage on Saturday afternoon, typified by decay and obsolete Infrastructure and the delivery of a stronger than expected job report by the United States economy may have sparked fresh concerns by some analysts on the outlook of Nigerian economy for 2025.
The outage, which occurred around 1:56 pm, according to the analysts and concerned Nigerians, underscore the fragility of the grid, which recorded 12 collapses in 2024.
The development, according to them, portends a serious danger fur the Small and Medium Enterprises, regarded as engine growth of the economy, but which have been contending with adverse effects of some monetary policy measures of the Central Bank of Nigeria (CBN) as well as some economic decisions, like subsidy removal and unification of exchange rates by the federal government, which they faulted the timing and adequate preparation
Although the Transmission Company of Nigeria (TCN), as at Saturday evening, had not reported a grid collapse, the outage has reignited conversations about the reliability of Nigeria’s power supply, despite huge investments in the sector.
Also, the creation of 256,000 jobs in December, according to a report released by the Bureau of Labor Statistics, compared to economists’ expectations of 160,000 by the US economy, may have signaled a more resilient labor market and is already reshaping expectations around the Federal Reserve’s (FED) interest rate policy.
This is with particular reference to the local currency, Naira, which has been under pressure with possible renewed risks of depreciation..
Following the announcement, US treasury yields surged, with the benchmark 10-year yield climbing to 4.76% and the two-year yield reaching 4.38%.
These developments have altered market expectations, with futures traders pushing back the anticipated timing of the first FED rate cut in 2025 from June to September.
Specifically, the latest jobs report raises concerns about the naira’s trajectory in 2025, creating a gloomy picture by analysts who were looking forward to series of Fed rate cuts that would boost capital flows into emerging markets, including Nigeria.
The implication is that the development would have provided support for the naira, which has been under pressure due to weak foreign exchange inflows and a widening trade deficit.
In fact, some analysts had projected a good outing for the naira in 2025 with an exchange rate range of between N1500 to N1580/$, factoring in assumptions of declining US interest rates.
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With US yields now likely to remain elevated, the naira could face further depreciation pressures, leaving these forecasts in limbo.
According to an analyst, the prospect of sustained high US rates poses several risks for Nigeria’s economy.
For instance, he says, higher US yields could increase the cost of servicing Nigeria’s dollar-denominated debt, worsening the country’s fiscal challenges.
He added that rising debt-service costs, coupled with a depreciating naira, could further strain government finances and limit fiscal policy options.
The development could exacerbate dollar shortages, increasing the naira’s volatility, with inflationary consequences, driving up the cost of imports and raw materials and placing additional pressure on consumers and businesses already grappling with rising costs.
It can also complicate CBN’s monetary policy objectives, while further limiting policy options
The apex bank, which is already walking a tightrope between controlling inflation and fostering economic growth, may find it increasingly difficult to stabilize the naira without substantial inflows of foreign exchange
