Key questions this article answers:
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How can politics impact the economy?
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Following the announcement of the All Progressives Congress’ Bola Tinubu as the new president-elect, the financial markets reacted. What does a Tinubu presidency have in store for our markets?
There’s no denying that politics and the economy are keenly intertwined. One common example of this is the trade-off governments typically face in dealing with high inflation and unemployment when an economy faces both. To remain popular and appear favourable to the public, the government is more likely to focus on fixing unemployment (by increasing spending), leading to even more inflation.
Elections also affect the economy. Think about it.
In a pre-election year, we often see the ruling party boost its spending and roll out favourable policies to improve its re-election chances or for its candidate to emerge victorious. The opposing parties also spend vast sums of money campaigning to win the public's hearts.
Furthermore, election years are often met with economic inertia as decision-makers adopt a wait-and-see approach to avoid any policy somersaults, given the possibility of a new ruling party.
Post-elections, the Central bank of Nigeria (CBN) might look to mop up excess currency in circulation from electioneering (or be proactive like the CBN Governor, Godwin Emefiele and mop it up before the elections).
The point is that elections impact business cycles and people’s expectations (or sentiments); what better-leading indicators measure these changes than financial market variables such as the stock and fixed-income markets?
