CardinalStone Cuts Nigeria's 2026 Growth Forecast to 4.2%, Predicts Rate Cuts After 2027 Elections

Investment firm CardinalStone has revised its forecast for Nigeria's economic growth in 2026 to 4.2%, down from an earlier projection of 4.4%. The revision is due to weaker-than-expected performance in key sectors and the continued impact of elevated inflation and interest rates.

The revised outlook is contained in the firm's report titled '2026 Mid-Year Economic Outlook: Steady Hands on Shifting Grounds.' According to CardinalStone, Nigeria's macroeconomic fundamentals remain relatively strong, but the economy faces risks from external shocks and the slow transmission of economic gains to households.

Services Sector Drags Growth

CardinalStone said the downward revision reflects disappointing first-quarter performance in the services sector, particularly trade and real estate. These sectors were affected by high borrowing costs and persistent inflationary pressures.

Despite recent improvements in macroeconomic indicators, the firm noted that stronger output growth has yet to translate into significant gains in jobs and household incomes. The report highlighted an employment elasticity of 0.74 and labour productivity of just $0.94 per hour.

Inflation Expected to Moderate

CardinalStone expects inflationary pressures to moderate in the second half of the year, with average month-on-month inflation projected at 1.1%, compared with 1.5% in the first half of 2026. The moderation is expected to be supported by easing geopolitical tensions globally and the Federal Government's decision to reduce import duties on rice and crude palm oil.

However, the firm warned that a low-base effect would keep annual inflation elevated. It projects average year-on-year inflation of 16.3% in the second half of 2026, compared with 15.5% in the first half.

CBN Likely to Hold Rates Until After Elections

CardinalStone expects the Central Bank of Nigeria (CBN) to maintain its current monetary policy stance through the 2027 general elections, delaying any meaningful easing cycle until afterward. The firm forecasts cumulative interest rate cuts of between 500 and 700 basis points between 2027 and 2028.

According to the report, the apex bank has maintained an aggressive liquidity-tightening strategy, withdrawing an estimated N59.3 trillion from the financial system since January 2026. This has contributed to a sharp slowdown in money supply growth, with broad money supply (M3) expanding by just 8.4% year-on-year in May 2026, significantly below the five-year average of 28%.

CardinalStone noted that the current pace of money supply growth is slightly below its estimated optimal level of 8.6%, which it believes is consistent with supporting economic growth without reigniting inflation.

Oil Windfall Limited by Production Challenges

Although oil prices averaged $101.89 per barrel between March and May 2026 due to geopolitical tensions in the Middle East, CardinalStone estimates that Nigeria's fiscal gains have been constrained by lower-than-budgeted crude oil production. The firm estimated the government's oil revenue windfall at N256 billion, as average production of 1.60 million barrels per day fell short of the budget benchmark of 1.84 million barrels per day.

For the full year, crude oil production is projected to average 1.67 million barrels per day, slightly higher than the 1.64 million barrels per day recorded in 2025, supported by improved security conditions and additional export volumes.

Naira Stable, External Sector Positive

CardinalStone maintained a positive outlook for Nigeria's external sector, noting that the naira has largely traded within its projected range of N1,350 to N1,450 per dollar. The firm reported a current account surplus of approximately $5 billion in the first quarter of 2026 and expects the surplus to reach $22.7 billion for the full year, equivalent to 5.9% of GDP.

It added that improvements in fiscal stability, external balances, and monetary policy credibility have strengthened Nigeria's macroeconomic position. However, CardinalStone stressed that policymakers will need to maintain a steady approach to navigate global uncertainties and ensure that economic growth translates into broader improvements in living standards and employment opportunities.

What This Means for the Naira and Nigerian Businesses

Nigeria's economy expanded by 3.89% year-on-year in the first quarter of 2026, according to data from the National Bureau of Statistics (NBS), an improvement from the 3.13% growth recorded in the corresponding period of 2025. Nominal GDP rose by 17.79% to N110.79 trillion during the quarter, supported by growth across agriculture, industry, and services. While the outlook remains positive, CardinalStone believes sustaining stronger and more inclusive growth will require continued reforms, lower inflation, and improved productivity across key sectors of the economy.