| Nigeria Economy |    1575 VIEWS  |
| Nigeria Economy | |
| 1575 VIEWS | |
 |
Thursday, May
28, 2020 / 10:45 AM / by FDC / Header Image Credit: Tribune Online
The Nigerian economy was already struggling in 2019.
It grew by 2.27%, below the population growth of 2.6%. Many analysts had
projected a steeper fall in the Q1'20 to as low as -2.5% as a reflection of the
Covid impact.
Nigeria's macroeconomic pre-condition of slow
productivity and shallow gross capital formation is catching up with it prior
to the Covid induced paralysis. Its growth in Q1 typically a period of seasonal
sluggishness was a mere 1.87%. When compared to the corresponding period in
2019, it shows a modest decline but when put in the trend line in comparison to
the last quarter, the slide become more obvious. It also sets the stage for a
precipitous crash in growth in Q2 which is estimated by some analysts to be as
much as -3.5%.
If growth slides further to below 0%, it would mean
that Nigeria may be caught in a stagflation trap. The Q1 numbers show once
again that the Nigerian economy was salvaged again by growth in the oil sector
courtesy of OPEC quota bursting. This will become more evident with the 42%
fall in oil price and strict enforcement of the OPEC quota. The limitations of
monetary policy tools in solving fiscal problems are now transparently evident.
Oil and Non-oil Sectors
A breakdown of the report shows that GDP growth is
still largely underpinned by oil, which grew by 5.06%. This was primarily due
to the 3.5% increase in domestic oil production to 2.07mbpd. The sector's
contribution to GDP increased to 9.5% from 7.32% in Q4'19. The non-oil sector
grew by 1.55%, down 0.71% from 2.26% in Q4'19. The sector's contribution to GDP
also slowed to 90.5% from 92.68%
Sector Breakdown - 4 activities expanded, 7 slowed while 6 contracted
The Covid effect started in Q1'20 but mainly external.
The impact was felt most by sectors such as trade that are heavily reliant on
imports. Of the 46 activities tracked by the NBS, only 9 outperformed the
national GDP growth rate. The fastest growing sectors are mainly in services -
finance & insurance (20.79%), transport (2.82%) and construction (1.69%).
The slowing and contracting sectors are employment elastic and lockdown
sensitive - agric (2.20%), manufacturing (0.43%), mining (4.58%) and ICT
(7.65%), real estate (- 4.75%), trade (-2.82%), and accommodation (-2.99%).
Outlook
Real GDP growth is projected to contract by -3.5% in
Q2'20 and –2.9% in Q3'20. This implies that the economy will most likely slide
into recession in the third quarter of 2020. Recessions are usually accompanied
by employee layoffs, increasing unemployment. The economy is in dire need of a
fiscal stimulus to jumpstart investment.
The MPC at its meeting tomorrow will be influenced by
the growth numbers, but will be more worried about the exchange rate induced
inflation of 12.34%. Even though lowering interest rates will help growth, the
MPC is likely to maintain status quo in view of the many uncertainties.
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