Nigeria’s Growth May Drop By 1.1% On Oil Shocks – Report

Nigeria’s economic growth outlook faces fresh downside risks as persistent global oil price shocks stemming from Middle East tensions threaten to weaken expansion and reignite inflationary pressures, according to a new report by VNL Capital.

Projecting that the Nigerian economy will grow by 4.24 per cent in 2026, the report said sustained energy price volatility could significantly derail that trajectory.

“Against the backdrop of stabilisation and ongoing reforms, we expect GDP growth of 4.24 per cent in 2026. However, downside risks remain, particularly from energy price shocks,” the report stated.

It warned that a repeat of past oil-driven disruptions could shave 1.1 percentage points off growth, particularly in a tight monetary environment.

“As seen in 2022, rising energy costs and tighter policy led to a slowdown; a similar shock could reduce growth by about 1.1 per cent, especially if the CBN maintains a restrictive stance,” it added.

The findings come amid renewed geopolitical tensions in the Middle East, which have pushed global oil prices higher, with VNL Capital analysts noting that Nigeria remains highly vulnerable to such external shocks despite ongoing reforms.

The report highlighted that energy price increases are transmitted quickly into domestic inflation, worsening cost pressures across the economy.

“Energy price shocks are likely to reverse part of the disinflation gains. In Nigeria, fuel prices pass through quickly to broader price levels,” it noted.

It further pointed out that recent developments have already triggered sharp increases in fuel costs, with broader implications for consumer prices.

“Recent upward adjustments have already increased fuel prices by 30–40 per cent, with limited scope for reversal in the near term,” the report said.

Beyond external shocks, the report highlighted domestic risks, particularly the impact of pre-election fiscal spending on inflation dynamics.

According to the report, Nigeria’s historical pattern shows that election cycles are often accompanied by aggressive liquidity expansion, driven by elevated government spending.

“Pre-election cycles are typically associated with sharp increases in money supply. Liquidity growth has often exceeded 20–30 per cent, and in some cases 50 per cent, driven by elevated fiscal spending. This has consistently translated into higher inflation with a lag,” it stated.

With 2026 shaping up as a pre-election year, the report warned that similar fiscal pressures could resurface, undermining recent gains in price stability. It said, “2026 presents a similar risk.

As a pre-election year, the pressure for fiscal expansion is expected to rise,” adding that election-related liquidity has already been flagged as a major inflation risk.

The report also cautioned that increased political spending could quickly reverse the disinflation trend recorded in 2025. “As political spending intensifies, any re-acceleration in liquidity could quickly reverse disinflation gains and renew pressure on inflation and the exchange rate,” it warned.

The VNL Capital report noted that this combination of oil price shocks and pre-election spending poses a dual threat to macroeconomic stability, complicating the Central Bank of Nigeria’s policy choices.

It noted that while monetary authorities may tighten policy to curb inflation, such a stance could further weigh on growth, especially if external shocks persist. It further stressed that maintaining a delicate balance between controlling inflation and supporting growth would be critical in the months ahead.

“We believe that while the CBN can effectively manage liquidity-driven inflation, the current energy price shock is largely exogenous and will test the limits of policy resilience,” it concluded.