‘Inflation to gradually decline!’ World Bank Forecasts 3.5% Economic Growth for Nigeria in 2025

The World Bank has projected that Nigeria’s economy will grow by 3.5% in 2025 and improve slightly to 3.7% in 2026, driven by increased services sector activity and gradual improvements in macroeconomic stability.

These forecasts, detailed in the World Bank’s latest Global Economic Prospects report, suggest a steady but modest recovery for Nigeria amidst ongoing domestic and global challenges.

Growth in Nigeria increased to an estimated 3.3% in 2024, primarily driven by strong performance in the services sector, notably in financial and telecommunication services.

Its report read,

“In Nigeria, growth increased to an estimated 3.3% in 2024, mainly driven by services sector activity, particularly in financial and telecommunication services. Macroeconomic and fiscal reforms helped improve business confidence.

“In response to rising inflation and a weak naira, the central bank tightened monetary policy. Meanwhile, the fiscal deficit narrowed due to a surge in revenues driven by the elimination of the implicit foreign exchange subsidy, following the unification of the exchange rate and improved revenue administration.”

Economic challenges
The projected growth for 2025 and 2026 reflects an expected rebound in consumption, supported by gradually declining inflation following monetary policy tightening by the Central Bank of Nigeria in 2024.

The services sector is anticipated to remain the main driver of growth, while oil production is expected to increase modestly but remain below the country’s OPEC quota.

The World Bank said in its report,

“Growth in Nigeria is forecast to strengthen to an average of 3.6% a year in 2025-26.

Following monetary policy tightening in 2024, inflation is projected to gradually decline, boosting consumption and supporting growth in the services sector, which continues to be the main driver of growth.

Oil production is expected to increase over the forecast period but remains below the OPEC quota.

The baseline forecast implies that per capita income growth will remain weak over the forecast horizon.”

Despite these positive developments, the World Bank emphasised that per capital income growth will likely remain weak over the forecast horizon.

The persistence of structural issues, including inflationary pressures, a weak naira, and underperforming oil production, pose significant risks to sustained economic recovery. Rising debt-servicing costs and limited fiscal buffers further complicate Nigeria’s economic outlook.

Regional context
Regionally, Nigeria’s performance remains crucial to Sub-Saharan Africa’s economic trajectory. The region’s growth is projected to accelerate from 3.2% in 2024 to 4.1% in 2025 and 4.3% in 2026, driven by robust domestic demand and improving trade prospects.

Growth in the region’s two largest economies, Nigeria and South Africa, rose to an average of 2.2% in 2024, driven by improved electricity supply in South Africa and higher oil production in Nigeria.

The World Bank projects that Nigeria’s growth will strengthen to an average of 3.6% a year in 2025-26, supported by robust activity in the services sector and recovering domestic demand. However, macroeconomic challenges, including inflationary pressures and exchange rate vulnerabilities, are expected to continue weighing on economic performance.

Background
Recall that the Nigeria’s Gross Domestic Product (GDP) grew by 3.46% year-on-year in real terms during the third quarter of 2024, according to the latest report from the National Bureau of Statistics (NBS).
This marks a notable increase from the 2.54% growth recorded in the corresponding period of 2023 and an improvement from the 3.19% growth observed in the second quarter of 2024.

The growth in Q3 2024 was primarily driven by the Services sector, which expanded by 5.19% and accounted for 53.58% of the aggregate GDP.

This highlights the sector’s growing importance in Nigeria’s economic landscape as growth in the sector more often than not leads to overall growth in the economy.