Expert chart path for economy in Q2, as Q1 ends on a high

Economic and financial experts at the weekend submitted that the second quarter economic outlook for the country’s economy remains cautiously positive but increasingly uncertain, as it will be shaped by geopolitical developments, political cycle dynamics, and fiscal execution risks.

To this end, they admonish that policy priorities should focus on consolidating macroeconomic stability, addressing structural bottlenecks, and implementing targeted measures to protect vulnerable populations.
They drew their position from the performance of the economy on the first quarter (Q1) which they claim represents a significant inflection point for the Nigerian economy, marked by notable gains in macroeconomic stability.

They however noted that these gains are tempered by persistent structural challenges and mounting welfare pressures. For instance, the ongoing Middle East conflict, they argued, presents a credible risk of stagflation, particularly if the crisis is prolonged or intensifies. Besides, the rising global energy prices, it is believed, are likely to amplify inflationary pressures while simultaneously constraining output growth through higher production and logistics costs. Therefore, for businesses and investors, success in this environment will depend on resilience, operational efficiency, and strategic positioning.

This dual impact, elevated inflation alongside weakened growth, analysts warns, poses a significant macroeconomic risk, with adverse implications for business profitability, investment decisions, and overall economic stability.

The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, in a policy brief obtained by The Trust News, noted that the economy in the first quarter, reflected a blend of improving macroeconomic stability and persistent structural constraints. He maintained that 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 normalisation of key economic indicators.

However, Yusuf said these improvements continue to coexist with significant headwinds. “The cost-of-living crisis remains pronounced, energy costs are still elevated, concerns around insecurity persist, and deep-seated structural rigidities continue to constrain productivity and investment,” the CPPE boss said.

According to him, as the economy transitions into the second quarter, the outlook remains cautiously optimistic but not without considerable risks as the trajectory of macroeconomic stability is vulnerable to external shocks, particularly the evolving geopolitical tensions, while the intensifying political cycle ahead of the 2027 elections could pose risks to policy focus and reform momentum. Additionally, fiscal execution constraints remain a critical concern, with implications for budget implementation, infrastructure delivery, and overall economic performance.

Yusuf, an economist, looking into his crystal ball, maintained that the outlook for Q2 2026 reflects a combination of sustained macroeconomic momentum and rising downside risks.

For instance, he said the current disinflation trajectory remains fragile and susceptible to reversal. He argued that the ongoing Middle East conflict has precipitated a sharp escalation in global crude oil prices, with benchmarks crossing the $100 per barrel threshold in recent weeks-developments with significant inflationary implications.

According to him, the development in the Middle East situation presents a classic dual-edged dynamic for the country. Yusuf explained that on the upside, elevated crude oil prices are expected to bolster export earnings, strengthen foreign exchange inflows, and improve government revenue. However, he warned of the downside risks which are immediate and far-reaching.

“Higher crude prices transmit quickly into domestic fuel costs, with consequential increases in logistics, production, and operating expenses across the economy. This cost pass-through effect poses a significant threat to the fragile disinflation process, potentially reversing recent gains in price stability, weakening real incomes, and further exacerbating the cost-of-living pressures facing households and businesses,” he said.
Although the economist pointed at the exchange rate which he said is expected to remain relatively stable in Q2, as it would be supported by improved reserves and forex liquidity, he nonetheless warns of persistent risks of volatility, particularly in the event of prolonged geopolitical tensions or shifts in investor sentiment.

“Economic growth is expected to remain positive in the near term, but the momentum is likely to moderate amid a confluence of downside risks. Elevated energy costs continue to exert significant pressure on production and operating expenses, while weak consumer demand—driven by eroded purchasing power—remains a binding constraint on output expansion.

“Additionally, the risk of a stagflationary environment is becoming more pronounced, as cost pressures persist alongside fragile growth dynamics. Compounding these challenges are potential policy distractions associated with intensifying pre-election political activities ahead of the 2027 general elections, which could dampen reform momentum and weaken macroeconomic management,” Yusuf said.

Still, the CPPE helmsman maintained that the scope for further monetary easing in the near term appears constrained by renewed inflationary pressures, particularly those linked to rising global energy prices. In this context, he argued, monetary policy is expected to remain cautious and strongly data-driven, with limited headroom for aggressive rate cuts.

“There is, however, a risk that the Central Bank of Nigeria (CBN) may be inclined toward further tightening in response to prevailing geopolitical and inflationary pressures. Such a stance would be counterproductive, given the fragility of current growth dynamics.
“Notably, the present inflationary episode is largely cost-push in nature—driven by energy prices, exchange rate pass-through, and structural inefficiencies—rather than excess aggregate demand. Consequently, additional monetary tightening would have limited effectiveness in addressing the underlying drivers of inflation, while potentially exacerbating constraints on investment, credit expansion, and overall economic growth,” Yusuf warned.

He warned of a key emerging risk which centers around the increasing tempo of political activities ahead of the 2027 general elections. With political realignments, defections, and early campaign positioning already intensifying, he argued, it raises concerns about policy distraction, as economic management may increasingly compete with electoral considerations. This, he opines, may lead to a growing risk of deceleration in reform momentum, as politically sensitive but necessary reforms become more difficult to sustain in a pre-election environment.

Yet, the CPPE, and economic and think-tank group, noted that the 2026 budget, estimated at about ₦68 trillion, presents both opportunities and risks.
It noted that while the scale of the budget has the potential to stimulate economic activity, its effectiveness will depend largely on implementation quality. The CPPE expressed key concerns to include weak revenue performance; delays in capital releases; limited project execution capacity and increasing political influence on expenditure priorities

“As political pressures intensify, there is a risk of weakening fiscal discipline, with greater emphasis on recurrent and politically expedient spending,” the CPPE warned.
For businesses and investors, therefore, the current environment calls for a strategic shift from expansion-driven models to resilience, efficiency, and risk management.

Yusuf urged businesses to embrace cost containment as a top priority, particularly through energy efficiency and logistics optimisation.

“There is also a compelling case for investment in alternative energy solutions, including solar and gas-powered systems, to reduce dependence on costly diesel and petrol. Foreign exchange risk management is critical. Firms should deepen local sourcing strategies, promote backward integration, and carefully manage currency exposure.
“Liquidity management remains essential. Businesses should maintain strong cash buffers and avoid excessive leverage in a still high-interest-rate environment,” he said.

Yusuf advised investors to adopt a selective approach, focusing on sectors with strong and inelastic demand; pricing power; export potential or forex earnings capacity; policy support and structural growth prospects and close monitoring of the political environment given the likelihood of policy shifts as the election cycle intensifies,” he said.

According to the CPPE, the most notable development in Q1 2026 was the consolidation of macroeconomic stability. He noted that inflation continued on a downward trajectory, as headline inflation, which exceeded 24 per cent in early 2025, moderated to 15.15 per cent in December 2025 and further eased to approximately 15.06 per cent by February 2026. This, he said, is a reflection of the combined effects of tighter monetary conditions, improved exchange rate stability and some easing in supply-side pressures.

“Exchange rate conditions also improved significantly. The naira, which experienced substantial volatility during the reform transition period, stabilised within a relatively narrow band of about ₦1,340 – ₦1,430 per dollar in the official market during Q1 2026. This stability has helped to moderate imported inflation and restore a measure of business confidence.

“External reserves strengthened considerably, rising above $50 billion in early 2026. This improvement reflects stronger oil earnings, enhanced foreign exchange liquidity, and improved market confidence, thereby strengthening the capacity of monetary authorities to manage exchange rate volatility.

“Growth momentum remained positive. Real GDP growth stood at 4.07% year-on-year in Q4 2025, with full-year growth at 3.87 per cent, supported by recovery in the oil sector and sustained expansion in the non-oil economy. Business activity indicators also remained positive, with Purchasing Managers’ Index (PMI) readings consistently above the 50-point expansion threshold.

“Monetary policy has begun to reflect these improvements. In February 2026, the Monetary Policy Committee reduced the policy rate by 50 basis points to 26.5 per cent, signaling the start of a cautious easing cycle.
“Overall, these developments point to a transition towards relative macroeconomic stability—an essential foundation for restoring investor confidence and improving economic growth outlook,” he explained.