GDP Slows at 4.03% in Q3 2021 as Base Year Effects Wane


Monday, November 22, 2021 09:02 AM / by FDC/ Header Image Credit: FDC


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The Q3 GDP report was released 7 days ahead of schedule. The growth rate even though slower than Q2 was a positive surprise to analysts and the markets. The economy grew by 4.03% (year-on-year) compared to 5.01% in Q2'21. The average growth rate in 2021 is 3.18%, which exceeds the IMF and World Bank forecasts of 2.6% and 2.4% respectively.


The positive growth was largely supported by sustained recovery in the non-oil sectors, especially rail transport (59.93%), air transport (33.31%), financial institutions (25.50%), telecoms (10.87%) and construction (4.10%). The two most important sectors of the economy - petroleum, which contracted sharply and agic, which slowed, are a cause for concern to policy makers. The petroleum sector is a major source of revenue and foreign exchange earnings while the agric sector is the highest contributor to GDP (29.94%) and the largest employer of labour (54.7%). Insecurity remains a major threat to agriculture. It has also triggered a major shift from road to rail and air transport as the preferred mode of transportation


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Nigeria needs consistent reforms to achieve sustainable growth

The average rate of growth in 2021 (3.18%) is 5.72% lower than the potential GDP growth of 8.9%. This is partly because of heightened insecurity and currency pressures. The IMF, in its article IV review maintains that consistent reforms in exchange rate and fiscal consolidation are crucial for investment and sustainable growth. The big-push theory, which was propounded by Paul Rosenstein-Rodan, emphasizes the need for massive capital investments in developing economies if they are to achieve sustained and inclusive growth.


Oil sector growth still in the negative territory The oil sector growth remained in the contraction territory but improved to -10.73% from -12.65% in Q2'21. This tepid performance can be largely attributed to lower oil production. Average oil production in Q3'21 was 2.48% lower at 1.57mbpd due to slowdown in drilling activities and pipeline sabotages. During the review period, there was a force majeure on one of the country's major oil export terminals (TransForcados Pipeline) due to operational challenges. Meanwhile, the sector's contribution to GDP increased to 7.49% from 7.42% in Q2'21.


Sector Performance - 27 expanded, 13 slowed and 6 contracted

Of the 46 activities tracked by the NBS, 27 expanded, 13 slowed and 6 contracted. The expanding sectors are relatively job inelastic, although they have the ability to boost productivity. The agric and trade sectors that employ about 70% of the labour force slowed in Q3 due to heightened insecurity, currency weakness and low consumer purchasing power. 

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Outlook & Impact

Real GDP growth will remain positive but likely to decline again in Q4 (3.5%) as base year effects wane. The sustained moderation in inflation (15.99%) and the positive GDP growth (4.03%) may persuade the MPC to maintain status quo in its policy stance.


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