Analysts at Norrenberger have predicted a gradual easing of inflation in the second half of 2025, projecting a rate of 28% by December 2025, amid a boom in equities.
This assessment is detailed in their report released on February 15, titled “Norrenberger Economic Outlook 2025.”
Headline inflation surged to 34.8% in December 2024, a significant increase of 5.87 percentage points from 28.92% in December 2023, marking the highest level in 28 years, reminiscent of March 1996.
However, the economic outlook presented in the Norrenberger report suggests that inflation is likely to remain elevated and sticky during the first half of 2025, with a gradual decline expected in the latter half of the year.
The anticipated moderation in inflation during the second half of 2025 is supported by several factors, including expected stability in the exchange rate, which is projected to hover between N1,550 and N1,650.
Furthermore, the base-year effect and the reduced impact of petrol subsidy removal on transportation costs, as markets adapt to the new pricing regime, may also lead to a decline in inflation.
However, the report also highlights several risks that could disrupt this outlook and exert upward pressure on inflation.
Risks to overcome
Norrenberger disclosed that several risks could impede the easing of inflation in the second half of the year.
According to their outlook, potential increases in energy prices and electricity tariffs could significantly impact production and transportation costs.
According to the report: “Several risks could disrupt this outlook and exert upward pressure on inflation. Potential increases in energy prices, particularly diesel and electricity tariffs, as well as telecom tariff hikes, could significantly impact production and transportation costs.”
- The analysts noted that persistent foreign exchange volatility remains a key concern. Food insecurity, driven by climate change, insecurity in farming regions, and supply chain disruptions, could also exacerbate price pressures, particularly in the food inflation category.
- Additionally, ongoing global tensions and geopolitical instability may affect global commodity prices, further complicating Nigeria’s inflation dynamics.
- Norrenberger emphasized that to achieve moderate easing in the second half, proactive measures are essential.
- Policies focused on boosting domestic production, enhancing food security, stabilizing the naira, and mitigating external shocks will be essential for achieving a sustainable reduction in inflationary pressures.
Positive market fundamentals and potential for an equity boom
The report indicates that the equities market is poised for potential growth in the second quarter of 2025, provided that macroeconomic factors such as GDP, unemployment, and inflation either remain stable or improve.
Positive developments within the equities sector are anticipated to attract investors, particularly considering the strong year-to-date performance witnessed in 2024.
“Looking ahead to 2025, we foresee a market characterized by volatility, yet brimming with growth potential,” noted Norrenberger.
In addition, the analysts suggested that a decline in interest rates by mid-2025 could serve as a significant catalyst for the equity market in the latter half of the year, encouraging investors to pivot from debt securities to equities.
“While fixed income yields remain elevated in 2024, we expect them to moderate as monetary tightening reaches its conclusion.”