CardinalStone revises Nigeria’s 2026 growth to 4.2% on high inflation, interest rate

INVESTMENT firm CardinalStone has revised its projection for Nigeria’s economic growth in 2026 to 4.2 percent, down from its earlier estimate of 4.4 percent, citing weaker-than-expected performance in major sectors of the economy as well as the lingering effects of high inflation and elevated interest rates.

The revised forecast was contained in the firm’s latest report, ‘2026 Mid-Year Economic Outlook: Steady Hands on Shifting Grounds,’ which noted that while Nigeria’s macroeconomic fundamentals remain resilient, the economy continues to face headwinds from external shocks and limited improvements in household welfare.

According to CardinalStone, the downgrade was largely driven by disappointing first-quarter (Q1) performance in the services sector, especially trade and real estate, where activity has been dampened by persistent inflationary pressures and expensive borrowing costs.

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“We now have a more conservative 2026 growth forecast of 4.2%, down from our previous estimate of 4.4%,” the report stated, adding that weaker-than-expected growth in services informed the revision.

The investment firm observed that although economic output has continued to expand, the benefits have not translated into stronger job creation or higher household incomes. It pointed to an employment elasticity of 0.74 and labour productivity of just $0.94 per hour as evidence that growth has yet to significantly improve living standards.

Looking ahead, CardinalStone expects inflationary pressures to ease in the second half (H2) of 2026. It projects average month-on-month inflation of 1.1 percent, compared with 1.5 percent (H1 recorded in the first six months of the year (H1). The anticipated moderation is expected to be supported by easing geopolitical tensions and the Nigerian government’s decision to lower import duties on rice and crude palm oil.

Despite this improvement, the firm warned that annual inflation would remain relatively high because of base effects. It forecasts average year-on-year inflation of 16.3 percent in H2 of 2026, compared with 15.5 percent in the first half.

On monetary policy, CardinalStone expects the Central Bank of Nigeria (CBN) to maintain its tight policy stance until after the 2027 general elections, delaying any meaningful interest rate cuts until then. The firm projects cumulative rate reductions of between 500 and 700 basis points during the 2027–2028 period.

The report said the apex bank has withdrawn an estimated N59.3 trillion from the financial system since January 2026 as part of its liquidity-tightening measures. Consequently, broad money supply (M3) grew by only 8.4 percent year-on-year in May 2026, well below the five-year average of 28 percent. CardinalStone noted that the current pace is slightly below its estimated optimal growth rate of 8.6 percent, which it considers sufficient to support economic expansion without reigniting inflation.

Although global geopolitical tensions pushed average crude oil prices to $101.89 per barrel between March and May 2026, the firm said Nigeria’s fiscal gains remained limited because crude oil production stayed below budget assumptions. It estimated the government’s oil windfall at N256 billion, with average production of 1.60 million barrels per day against the budget benchmark of 1.84 million barrels per day.

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For the full year, CardinalStone expects crude oil production to average 1.67 million barrels per day, slightly above the 1.64 million barrels per day recorded in 2025, supported by improved security and higher export volumes.

The firm also retained a positive outlook on Nigeria’s external sector, noting that the naira has largely traded within its projected range of N1,350 to N1,450 per dollar. It estimated a current account surplus of about $5 billion in the first quarter of 2026 and expects this to rise to $22.7 billion by year-end, representing 5.9 percent of GDP.

CardinalStone said improvements in fiscal stability, external balances and the credibility of monetary policy have strengthened the country’s macroeconomic position. However, it stressed that policymakers must sustain reforms and carefully manage global uncertainties to ensure stronger economic growth translates into higher employment, improved productivity and better living standards.