Navigating headwinds: Nigeria's economic outlook for H2 2025
Globally, two major developments have reshaped the economic outlook: the return of Donald Trump to the U.S. presidency and the escalation of the Israel-Iran conflict. Trump's reintroduction of import tariffs—10% across the board, with additional levies on selected countries—has renewed global trade tensions, undermined multilateralism, and triggered capital flow reversals to emerging markets. Meanwhile, the Middle East conflict has disrupted oil supply routes, increased freight costs, and spurred volatility in global commodity prices.
These external shocks have led the International Monetary Fund (IMF) to revise its global GDP growth forecast downward to 2.8% in 2025, from an earlier 3.3%. Although Sub-Saharan Africa is expected to grow by 3.8%, driven by structural reforms and improved export performance; however the region remains vulnerable to external shocks, especially in energy markets and financial flows.
Domestic Realities: Falling Short of Oil Expectations
Nigeria, still heavily reliant on oil, has felt the weight of these developments. Despite commendable efforts to diversify her export base, oil remains the lifeblood of government revenue. The Federal Government's ₦54.99 trillion 2025 budget was benchmarked at US$75 per barrel and 2.06 million barrels per day in production. However, actual performance in H1 2025 has fallen short, with oil prices averaging US$72 per barrel and production consistently below target. This has created a growing fiscal gap and raised questions about Nigeria's ability to meet her ₦35 trillion revenue projection.
Positive Signs: PMI Growth and Inflation Tapering
Despite these challenges, there are positive signals in the local economy. The Purchasing Managers' Index (PMI), a reliable indicator of economic activity, remained above 50 points between January and May 2025, indicating expansion in key sectors such as agriculture, industry, and services. Inflation, while still high, has begun to decline—from 24.5% in January 2025 to 23% by May 2025—thanks to the combination of improved food supply, relative exchange rate stability, and methodological adjustments by the National Bureau of Statistics.
Exchange Rate Stability: Progress or Pause?
Exchange rate dynamics have also shown signs of stabilisation. The Naira stood at ₦1,539/US$ as of June 2025, reflecting only a marginal 0.2% depreciation year-to-date. The 'willing buyer, willing seller' FX policy has improved transparency and market confidence, although Nigeria's external reserves declined by 8.5% in H1—from US$40.9 billion to US$37.3 billion—due to rising import bills and debt repayments.
FSDH projects that exchange rate stability will depend on continued FX inflows, investor confidence, and fiscal discipline. With oil prices expected to hover around US$75-US$78 per barrel, maintaining production and boosting non-oil exports will be critical. Analysts caution that a renewed slump in oil output or a further deterioration in global trade conditions could reignite currency volatility.
Fiscal Reform in Focus: Tax Administration Shake-Up
A major turning point in H1 2025 came in June, when President Tinubu signed four transformational tax reform bills into law. These include the Nigeria Tax Act, Nigeria Tax Administration Act, Joint Revenue Board Act, and Nigeria Revenue Service Act. Collectively, these reforms aim to harmonise tax administration, improve compliance, and empower a new, independent national revenue service.
Highlights of the reforms include raising the Capital Gains Tax for corporates from 10% to 30%, introducing a Development Levy on large firms, zero-rating VAT for essential goods, and exempting small businesses with under ₦100 million turnover from filing taxes. The reforms are expected to grow Nigeria's tax-to-GDP ratio from 10% to 18% within three years. While implementation remains a hurdle—especially at state and local levels—this marks a significant shift in Nigeria's revenue strategy.
In the capital markets, optimism is quietly building. The Nigerian Exchange (NGX) posted a 16.6% year-to-date return as of June 2025, outperforming many global indices. Banking and consumer goods stocks led gains, buoyed by strong corporate earnings and macro reforms. Treasury Bill yields and long-term bond rates have declined, signaling renewed investor appetite for Nigerian assets.
Foreign Portfolio Investments (FPIs) flows have increased significantly, hitting US$5.46 billion in Q1—a 67% jump from the previous quarter. This resurgence has been fueled by FX reform, positive real interest rates, and improved clarity on policy direction. However, the risk of 'hot money' outflows remains, underscoring the need for deeper, longer-term capital investments.
Strategic Priorities for H2 2025
Looking ahead, FSDH outlined several strategic imperatives for economic stakeholders in H2 2025. First, there is an urgent need to boost oil production, not just to meet budget benchmarks, but to enhance export earnings. Second, the country must deepen its non-oil export capabilities, especially in agriculture and manufacturing, to diversify FX sources. Third, unlocking private-sector credit by reducing the high Cash Reserve Ratio (CRR) remains key to real sector growth. Fourth, leveraging ongoing tax reforms to enhance state-level revenue and improve the business climate is vital.
Importantly, Nigeria's digital economy and financial technology space also hold promise. The integration of AI, open banking frameworks, and digital payment systems are transforming how financial services are delivered. FSDH notes that institutions that embed digital transformation into their service models will lead in agility, customer retention, and market expansion.
Cautious Optimism: Nigeria's Path Forward
While global risks remain—from U.S. monetary policy to geopolitical tensions and potential oil shocks—Nigeria has the tools to stay on a path of gradual stabilisation. The success of H2 2025 will depend on disciplined execution of reforms, coordinated fiscal and monetary policy, and institutional accountability.
Nigeria's economic outlook for the rest of 2025 is cautiously optimistic. Inflation is expected to decline further which may allow for monetary easing later in the year. The Naira is likely to remain within the current range, while GDP growth will be modest, driven by agriculture, services, and rising investor interest. Structural reforms are beginning to take root, but the second half of the year will require political will, macroprudential discipline, and bold leadership.
And as FSDH aptly notes in its report, 'Resilience is not just about surviving the storm; it's about building structures that thrive within it.' Nigeria has the opportunity to prove that in H2 2025.
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