The World Bank has downwardly revised Nigeria’s economic growth projection for 2026, citing a volatile cocktail of geopolitical tensions and energy price instability that threatens to dampen the continent’s largest economy.

In its April 2026 Economic Outlook update, the Washington-based lender adjusted Nigeria’s growth projection to 4.10 per cent for 2026 and 4.20 per cent for 2027, a notable decline from the 4.40 per cent previously forecast for both years.

“The bank’s downward adjustment was driven by several combined factors, including the persistent uncertainty in the global economy, particularly following the Middle East conflict,” noted an investment analyst at Meristem Securities Limited.

Oil shock effect

The revision comes on the heels of intense geopolitical friction between the U.S. and Iran, which triggered a significant oil shock earlier this year. While a brief ceasefire led to a sharp single-day decline in crude prices, the initial spike has already begun to permeate the Nigerian domestic economy through increased transportation and logistics costs.

“The geopolitical tension has triggered an oil shock, driving global fuel and commodity prices upward. This pushed up transportation and food costs in Nigeria, exerting upward inflationary pressures on prices which could dampen consumption and business investment,” the analyst stated.

Domestic, sectoral slack

Beyond external pressures, the World Bank highlighted internal structural challenges that continue to impede a more robust recovery. Weaker-than-expected investment growth and policy ambiguities have left key sectors like agriculture struggling to find a consistent rhythm.

“Weaker investment growth, policy uncertainties, and uneven performance of key sectors like agriculture and oil contributed to the downward revision,” the report observed.

Despite the downgrade, local sentiment remains cautiously optimistic. Analysts point to the Central Bank of Nigeria’s Purchasing Manager’s Index, which remains above the 50-point expansion threshold, as a sign that the private sector is still showing grit.

Resilience amid downgrades

The financial markets have reacted with a split personality. While the bond market faced sell pressures, the T-Bills and Eurobond markets showed resilience, with yields moderating as investors sought quality assets.

“As the Federal Government continues its push to boost output in the petroleum sector, the focus now shifts to whether domestic policy can shield the economy from the ‘upward trend’ of global inflation, which recently saw U.S. headline figures hit a two-year high of 3.30 per cent. “

“While the reduced growth outlook is likely to temper expectations for corporate earnings and foreign investment inflows, we expect that favourable macroeconomic conditions, particularly with a relatively stable exchange rate and the slightly lower interest rate, recent ratings upgrade and reclassification, will support business activity and sustain positive investor sentiments.

Furthermore, leading macroeconomic indicators like the CBN’s Purchasing Managers’ Index suggest that the domestic economy remained in expansion so far in 2026, as PMI readings stayed above the 50.00 points threshold. However, growth momentum slowed in March following the escalation of the US-Iran war, with the PMI declining to 53.20 pts (vs. 56.40 pts in February).

“Overall, we expect economic growth momentum to remain resilient in the near to medium term, supported by the government’s efforts to boost output in sectors like oil and agriculture, while a relatively stable interest rate environment and exchange rate market should encourage credit and support import costs, respectively,” the analyst added.

According to the National Bureau of Statistics of China, inflation slowed to 1.00 per cent YoY in March 2026 from its three-year high of 1.30 per cent YoY in February. The decline was driven by a deceleration in both food and core inflation as demand softened post the Lunar New Year holiday. Food inflation eased to 0.30 per cent YoY from 1.70 per cent YoY in February 2026 due to a slowdown in fresh vegetables, fruits and pork prices, “which we believe is still linked to oversupply and reduced demand”. Similarly, core inflation moderated to 1.10 per cent YoY in March 2026 from 1.80 per cent YoY in February 2026, driven by softer services inflation (0.80 per cent vs. 1.60 per cent).

“However, the analyst added that the pass-through from the ongoing ‘Middle East tensions’ is beginning to reflect in prices, as transport and communication costs moved out of deflation (-0.70 per cent) in February to a 0.90 per cent YoY increase in March. The main driver was fuels for transport, which rose 3.40 per cent YoY after a 9.00 per cent YoY decline in February, pointing to higher global energy prices despite government controls on domestic fuel prices.

The Producer Price Index, which rose for the first time in 41 months to 0.50 per cent YoY in March (vs. a 0.90 per cent YoY decline in February), driven by higher prices in oil and gas mining, non-ferrous metals, and chemical raw materials, further supports this claim.

“We expect China’s inflation to rise in the near term, as high oil prices from Middle East tensions could continue to raise fuel and transportation costs despite domestic price controls, exerting upward pressure on the CPI. Food prices are also likely to remain elevated due to higher feed and import costs, alongside continued government stimulus to sustain demand.”