Wednesday, August 31, 2016 1:13pm / FBNQuest Research
Event: Q2 2016 GDP figuret
The latest national accounts from the NBS show that GDP (at constant basic prices) contracted by -2.2% y/y in Q2 2016 from -0.4% the previous quarter. The oil sector contracted by -17.5% y/y compared with -1.9% y/y in Q1 2016.
The non-oil sector contracted by -0.4% y/y compared with a contraction of -0.2% recorded in Q1 2016. For the non-oil economy, Manufacturing contracted by -3.4% compared with -7.0% in Q1 2016. We attribute the slower contraction to base effects as fx sourcing issues are still biting manufacturers and power shortage was at its peak in Q2.
Agriculture grew by 4.5% y/y compared with 3.1% y/y recorded in Q1. Growth in the sector was driven by crop production output. Construction contracted by -6.3% y/y compared with a contraction of -5.4% y/y in Q1. Delays in execution of the budget as well as slowdown in demand from the private sector contributed to the continued slowdown.
Education grew by 2.9% y/y compared with 3.8% y/y. Finance and Insurance contracted by -10.8% y/y in Q2 compared with -11.3% y/y in Q1.
There are no major surprises in this release as we expected a contraction in Q2. Given the macro challenges (steep slide in oil prices, production shortages due to vandalism, fx sourcing issues in an import dependent country and hike in inflation) the negative reading was a foregone conclusion.
Technically, given that Nigeria’s GDP has now showed a decline for two consecutive quarters, the economy is in recession. According to the minister of finance, Kemi Adeosun, this recession will be short-lived.
However, she stressed that FGN is committed to stimulating the economy through its capital releases, social intervention programs, import substitution strategies, tackling the oil production crisis in the Niger Delta and policies geared towards attracting foreign portfolio and direct investments.
Although we expect to begin to see signs of recovery as we enter Q4, there is still a lot of work to do and delays in releasing capital could also delay the recovery. There is also a risk that revenue collection shortfalls may led to capex cuts.
Our 2016 GDP growth forecast is -1.2% (under review).