Oil, Manufacturing, Services To Lift Nigeria’s GDP To 4.2% – NESG

The Nigerian Economic Summit Group (NESG) has projected Nigeria’s economy to grow by 4.2 per cent at the end of 2026, driven by stronger performance in the oil, manufacturing, agricultural and services sectors.

The economic think tank, in its H1 2026 State of the Economy Report titled “Turning Potential into Progress,” said growth is expected to accelerate to about 4.5 per cent in the second half of the year, bringing full-year gross domestic product (GDP) growth to approximately 4.2 per cent.

The report, released on Wednesday, attributed the improved outlook to rising domestic crude oil production, increased refining activity, improving foreign exchange liquidity, greater exchange rate stability and strengthening activity across key non-oil sectors.

NESG said the oil sector is expected to maintain its growth trajectory as improved security conditions and the gradual implementation of upstream reforms support higher domestic crude production.

According to the group, increased domestic refining capacity would further strengthen industrial output, reduce Nigeria’s dependence on imported refined petroleum products and improve the country’s external position.

“Moreover, manufacturing activity is expected to sustain growth momentum as lower inflation, continued exchange rate stability, and improved foreign exchange liquidity ease production constraints and strengthen business confidence,” NESG said.

The group, however, noted that manufacturing growth would continue to face significant structural constraints, including unreliable electricity supply, high borrowing costs, elevated logistics expenses and weak domestic demand.

NESG said the services sector would remain the largest contributor to economic growth, with financial services expected to benefit from recent bank recapitalisation efforts, stronger credit intermediation and improved investor confidence.

It added that the information and communications technology (ICT) sector would sustain its robust performance on the back of increased digital adoption, rising data consumption and continued investment in telecommunications infrastructure.

The agricultural sector is also expected to record improved performance, supported by favourable rainfall and harvest conditions that could boost crop production and ease pressure on food supplies.

However, NESG warned that persistent insecurity in major food-producing areas and climate-related disruptions, particularly flooding, could undermine expected gains in agricultural output.

The group identified several risks that could weaken the growth outlook, including global economic and geopolitical shocks, election-related uncertainty, insecurity and climate-related disruptions.

It warned that a sharper-than-expected slowdown in global economic activity, renewed trade tensions and tighter global financial conditions could reduce Nigeria’s export earnings and foreign exchange inflows while constraining fiscal revenues and increasing pressure on the exchange rate.

NESG also cautioned that rising political activities ahead of the 2027 general elections could weaken the momentum of economic reforms and place additional pressure on fiscal discipline through increased pre-election spending.

Persistent insecurity, particularly in the North-Central and North-West regions, was identified as another major downside risk.

The group said insecurity could disrupt agricultural production, mining activities and the movement of goods and services, while also discouraging domestic and foreign investment.

Similarly, flooding and other extreme weather events could damage infrastructure, disrupt agricultural production and food supply chains, increase food inflation and weigh on overall economic growth.

Despite the risks, NESG identified several factors that could push economic growth above its baseline projection.

It said a stronger-than-expected recovery in oil production, higher foreign capital inflows and faster implementation of structural reforms could provide additional momentum for the economy.

According to the group, higher crude oil output, sustained improvements in pipeline security, reduced oil theft, increased upstream investment and stronger international oil prices could boost export earnings, strengthen government revenues and support the accumulation of external reserves.

NESG further said stronger policy credibility, improved liquidity in the foreign exchange market, greater exchange rate stability and favourable sovereign credit-rating actions could attract increased portfolio and foreign direct investment into the country.

It added that faster implementation of reforms in taxation, power, infrastructure and the broader business environment could raise productivity, reduce the cost of doing business and stimulate private-sector investment.

Such reforms, the group said, could also support stronger manufacturing activity and promote more sustainable, private-sector-led economic growth.

On inflation, NESG projected that price pressures would remain elevated during the remainder of 2026, with inflation averaging 15.5 per cent in the second half of the year and for the full year.

The group attributed the expected inflationary pressures to persistent insecurity in major farming communities, climate-related disruptions, particularly flooding, and high transportation costs arising from logistics challenges.

It also identified election-related spending, seasonal demand during the festive period and relatively high energy costs as factors that could generate temporary cost-push inflationary pressures in the second half of the year.

However, NESG said these pressures could be partly moderated by continued exchange rate stability, the lagged effects of tight monetary policy and favourable base effects.

The group’s outlook underscores the importance of maintaining macroeconomic stability and accelerating structural reforms to convert the projected recovery into stronger and more sustainable economic growth.

NESG said the ability of policymakers to address infrastructure constraints, improve security, strengthen the business environment and sustain reform momentum would be critical to ensuring that the economy achieves or exceeds its 4.2 per cent growth projection in 2026.