Easing inflation and a steadier naira signal progress, yet high costs, insecurity, and political pressures cloud the outlook ahead of 2027…..
Nigeria’s economy showed early signs of stabilization in the first quarter of 2026, but the recovery remains uneven, with persistent structural challenges and emerging risks threatening to derail progress.
In a detailed economic review released on April 5, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, painted a picture of cautious optimism one where policy gains are beginning to take effect, even as underlying weaknesses continue to weigh on households and businesses.
According to Yusuf, the most notable development in early 2026 is the consolidation of macroeconomic stability following months of turbulence linked to major policy reforms.
Inflation has continued its downward trend, falling from over 24% in early 2025 to just above 15% by February 2026. This easing reflects tighter monetary conditions, improved exchange rate management, and gradual relief in supply-side pressures.
The naira has also shown signs of stability, trading within a narrower range of ₦1,340 to ₦1,430 per dollar in the official market. This relative calm has helped reduce imported inflation and improve confidence among businesses.
External reserves have strengthened significantly, climbing above $50 billion—boosted by higher oil earnings and improved foreign exchange liquidity. This has enhanced the intervention capacity of the Central Bank of Nigeria in managing currency volatility.
Economic growth has remained resilient. Nigeria recorded 3.87% GDP growth for 2025, with momentum supported by a recovery in oil output and continued expansion in the non-oil sector. Business activity indicators have also stayed positive, with purchasing indices consistently above the 50-point benchmark.
Reflecting these gains, the Central Bank recently signaled a shift in policy direction, trimming interest rates slightly in February to mark the beginning of a cautious easing cycle.
Beneath the Surface: A Tough Operating Environment
Despite the improving macro indicators, Yusuf warns that conditions in the real economy remain challenging.
The cost-of-living crisis continues to bite. While food prices have moderated somewhat, transportation and energy costs remain elevated, significantly eroding household purchasing power.
For businesses, energy remains one of the biggest pain points. With unreliable electricity supply, firms continue to rely heavily on diesel, petrol, and gas-powered generatorsdriving up production and logistics costs across sectors.
Insecurity is another major concern. Disruptions in key agricultural regions are constraining food supply, sustaining inflationary pressures, and weakening rural economic activity. The situation also affects logistics, investment decisions, and overall business confidence.
Access to credit remains tight, particularly for small and medium-sized enterprises. Even with a slight reduction in policy rates, lending costs remain high, limiting expansion and investment.
The result, Yusuf notes, is a clear disconnect: while macroeconomic indicators are improving, everyday economic realities for businesses and consumers remain fragile.
Q2 Outlook: Fragile Gains Face Fresh Threats
Looking ahead to the second quarter, the outlook is cautiously optimistic but increasingly uncertain.
One of the biggest risks comes from rising global oil prices, driven by escalating geopolitical tensions involving Iran, United States, and Israel.
Oil prices have already crossed the $100 per barrel mark, presenting a double-edged scenario for Nigeria. While higher prices could boost government revenue and foreign exchange inflows, they also translate into higher domestic fuel costs pushing up inflation and business expenses.
Yusuf cautions that this cost pass-through effect could reverse recent gains in price stability and intensify pressure on households and firms.
Exchange Rate Stability, But Not Without Risks
The naira is expected to remain relatively stable in the near term, supported by stronger reserves and improved FX liquidity. However, risks of volatility remain, particularly if global tensions persist or investor confidence weakens.
Economic growth is also likely to continue, but at a more moderate pace. High operating costs and weak consumer demand are expected to constrain output expansion across sectors.
There are growing concerns about the risk of stagflation a scenario where inflation remains high while growth slows if current pressures intensify.
A Delicate Policy Balancing Act
For the Central Bank of Nigeria, the path forward presents a complex challenge.
While inflation has eased, renewed pressures from energy prices could limit further rate cuts. There is also a possibility of renewed tightening, though Yusuf argues this would be counterproductive.
He notes that Nigeria’s inflation is largely driven by structural and cost-related factors such as energy prices and exchange rate dynamics—rather than excessive demand. As a result, further tightening could stifle investment and credit without effectively addressing inflation.
Political and Fiscal Risks on the Horizon
Beyond economic fundamentals, political developments are beginning to shape the outlook.
With the 2027 elections approaching, early signs of political activity are emerging. Yusuf warns that this could lead to policy distractions and a slowdown in reform momentum.
At the same time, the implementation of the ₦68 trillion 2026 budget faces significant hurdles, including weak revenue performance, delays in capital releases, and limited execution capacity.
There are also concerns that rising political pressures could shift spending priorities toward short-term considerations, weakening fiscal discipline.
What This Means for Businesses and Investors
In Yusuf’s view, the current environment calls for a strategic shift.
Businesses are increasingly prioritizing cost efficiency, particularly in energy and logistics, while exploring alternative power solutions such as solar and gas.
Managing foreign exchange exposure has also become critical, with firms encouraged to deepen local sourcing and reduce reliance on imports.
For investors, the focus is shifting toward sectors with strong demand fundamentals, pricing power, and foreign exchange earning potential.
The Road Ahead
Yusuf concludes that while Nigeria has made meaningful progress in stabilizing its economy, the gains remain fragile.
The coming months will be shaped by a complex mix of global shocks, domestic policy choices, and political dynamics. If reforms are sustained and risks managed effectively, the current trajectory could be maintained.
But if external pressures intensify or policy focus weakens, the recovery could quickly lose momentum.
For now, Nigeria stands at a critical juncture one where stability is within reach, but far from secure.
