Review of the Nigerian economy in 2025 and outlook for 2026; a year of macroeconomic stabilisation by Centre for Promotion of Private Enterprise

 

By Dr Muda Yusuf

The year 2025 marked a significant turning point in Nigeria’s macroeconomic trajectory following the turbulence associated with the early phase of reforms.

Exchange-rate stability emerged as the most visible achievement, with the naira largely trading within the ₦1,440–₦1,500/US$ band. Periodic marginal appreciation strengthened business confidence, eased imported inflation and restored predictability to pricing, contracting and investment planning.

Inflation decelerated sharply from 24.48 percent in January to about 14.45 percent by November 2025. The slowdown was supported by currency stability, easing logistics pressures and improving supply conditions.

Several food items and imported consumer goods recorded outright price declines, contributing to improved consumer sentiment and reduced price volatility.

Business confidence strengthened materially. The NESG–Stanbic IBTC Business Confidence Index remained positive for most of the year, reflecting improved investor perception and a gradual recovery in corporate profitability. Many firms that posted losses in 2024 returned to profit in 2025, underscoring the stabilisation gains.

Fiscal Performance: Mixed Outcomes
Despite macroeconomic stabilisation, federal fiscal performance remained weak. Debt-service obligations continued to constrain fiscal space, undermining budget execution. Revenue underperformance persisted, largely reflecting sub-optimal oil sector performance.

The 2025 Federal Budget was anchored on optimistic assumptions—US$75 per barrel oil price and production of 2.06 million barrels per day (mbpd). Actual outcomes fell materially short, with average oil prices around US$66 per barrel and production closer to 1.66 mbpd. Consequently, the projected ₦41 trillion revenue target was significantly missed, leading to weak capital expenditure implementation.

In contrast, sub-national governments recorded relatively stronger fiscal outcomes. Improved liquidity, stronger internally generated revenue (IGR) performance and better capital project execution enabled more tangible delivery of infrastructure and social services across several states.

Sectoral Performance
The services sector remained the primary driver of growth. By Q3 2025, services accounted for about 53 percent of GDP, compared with 3.44 percent for oil. The non-oil sector contributed 96.56 percent of GDP and grew by 3.91 percent, highlighting Nigeria’s gradual structural shift away from oil dependence.

Services grew by 4.14 percent, driven by telecommunications, financial services, trade, construction and real estate. Manufacturing remained fragile, growing by just 1.25 percent and contributing 7.62 percent to GDP, reflecting persistent constraints—power deficits, logistics costs, unfair competition from imports, weak access to finance and high operating costs.

Agriculture recorded a marginal recovery, growing by 3.79 percent and contributing 31.21 percent to GDP. However, insecurity, low productivity and post-harvest losses continued to limit its contribution to exports and fiscal revenues.

Outlook for 2026: From Stability to Growth
The CPPE’s 2026 economic outlook is that of cautious optimism. With reform momentum sustained, Nigeria is expected to transition more decisively from stabilisation to growth. GDP growth is projected between 4.0 and 4.5 percent, supported by continued moderation in inflation and stronger non-oil sector performance.

Moderating inflation should strengthen domestic demand and create room for gradual monetary easing, potentially lowering interest rates and stimulating private investment. Services—especially telecommunications, finance, construction, real estate and trade—will remain the primary growth engine.

Capital-market prospects are positive, supported by the potential listing of Dangote Refinery, which could deepen market liquidity and attract domestic and foreign portfolio inflows. Policy credibility remains strong, reinforcing investor confidence and capital inflows.

Key Risks to the Outlook
Despite the improving trajectory, several downside risks persist:
Security challenges: Insecurity continues to constrain agriculture, logistics and investment.

Oil price and production volatility: Fiscal performance remains sensitive to oil shocks.
Structural constraints: High power, energy and logistics costs will continue to weigh on real-sector productivity.
Debt and fiscal pressures: Debt service—estimated at over ₦15 trillion in the 2026 appropriation (about 50 percent of projected revenue)—continues to constrain fiscal space.

External headwinds: Geopolitical tensions could affect trade flows, commodity prices and capital movements.

Pre-election pressures: Fiscal and political uncertainties in the pre-election year could heighten risks.
Pushback on tax reforms: Emerging resistance may undermine tax revenue expectations for 2026.

Conclusion
Overall, 2025 laid a solid foundation of macroeconomic stability. The outlook for 2026 is reassuring, with expectations of stronger growth, easing inflation, improving investor confidence and a gradual shift toward more inclusive expansion. If reform momentum is sustained and security challenges are effectively addressed, 2026 could mark the beginning of a more robust growth phase with tangible improvements in living standards.

Written by Dr Muda Yusuf; Chief Executive Officer, the Promotion of Private Enterprise (CPPE)

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