GDP Rises by 5.01% in Q2 2021 as Economy Exits Slow Growth

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Friday, August 27, 2021   /01:30 PM / By TheAnalyst,  Proshare Research/Header Image Credit: NBS

 

After a rather fragile start to the year, the Nigerian economy grew at a rate of 5.01% in Q2 2021, according to figures released by the National Bureau of Statistics (NBS). Analysts were of the view that Nigeria's GDP grew on account of a low base set in 2020 as a result of COVID-19. The removal of COVID-19-prevention measures, and a burst of government spending saw the economy flash stronger growth signals. Taken together, the economy recorded a year-to-date growth of 2.7% which was 4.88 percentage points higher than the growth rate recorded in H1 2020.

 

Nigeria's economy shrunk by -6.1% in Q1 2020, when a total lockdown was imposed on major economic cities like Lagos, FCT, and Ogun state. The economy thereafter fell into a technical recession with a negative growth rate of -3.62% recorded in Q3 2021. With the lifting of the COVID lockdowns in Q4 2020, economic growth became positive but fragile at 0.11%. Based on the gains in Q4 2020, the economy expanded by 0.51% in Q1 2021 (see chart 1 below).


Chart1: GDP at 2010 constant price (Real GDP Growth %)

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Source: NBS, Proshare Research

 

Quarter-on-Quarter (Q-o-Q), nominal GDP for Q2 2021 was N39.12tr which was lower than the N40.5tr nominal GDP recorded in Q1 2021. When the GDP deflator of 234.35 was applied to cater for the change in the general price level, GDP in real terms for Q2 2021 was estimated at N16.69tr, which was lower than the N16.82tr real GDP recorded in Q1 2021.

 

Sector contributions: Services Lead the Leap

A breakdown of the GDP numbers showed that the oil sector contributed 7.42% to the Q2 2021 GDP, this represented a reduction of 183 basis points from 9.25% in Q1 2021, the complementary 92.58% was accounted for by the non-oil sector. The reduction in the contribution of the Oil sector can be attributed to the reduction in oil production from 1.72mbp in Q1 2020 to 1.61mbp in Q2 2021. Likewise, the real GDP in Q2 2021 received contributions from Services 55.66%, Agriculture 23.78%, and Industries 20.57%. The service sector contributed 53.9% to GDP in Q1 2021 while 23.75% and 22.35% of the Q1 GDP were ascribed to Industry and Agriculture. The service sector has remained the highest contributing sector especially after making the largest contribution to GDP in six successive quarters (see chart 2)

 

Chart2: Contribution of Major sectors to GDP (%)

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Source: NBS, Proshare Research

 

Sectoral Growth: Mining  slumps while Electricity leaps


A more intricate look at of the Q2 2021 GDP showed that while the economy as a whole saw an expansion of +5.01% in Q2 2021, major economic sectors such as Agriculture, Manufacturing, Electricity, Construction, Accommodation, and Food and Water and Sewerage posted notable growth. Conversely,  Mining and financial and insurance sectors contracted year-on-year (Y-o-Y).


The Agricultural sector gained +1.30% Y-o-Y in Q2 2021, an outcome that was less than the +2.28% growth recorded in Q1 2021. Crop production accounted for the largest growth in the sector. The Manufacturing sector also grew in the Q2 2021 by +3.49% Y-o-Y a major improvement on the -15.67% growth recorded in Q1 2020. The Information & Communication sector recorded a growth of +5.55% in real terms.


The Mining sector fell by -12.29% Y-o-Y, a fall largely attributed to a contraction in the Oil and Gas sub-sector which constitutes 91.88% of the sector. Electricity and Gas grew by +78.16% in Q2 2021 from -3% recorded in Q1 2020. The Construction sector grew by +3.7% in the second quarter which is higher than the -36.16% growth recorded in Q12020. Growth in this Finance and Insurance sector in real terms amounted to -2.48%, lower by -20.97% points from the rate recorded in the second quarter of 2020.

 

Accommodation and Food also grew 19.07% Y-o-Y, the Transportation sector grew by 76.81% Arts, Entertainment and Recreation rose by +1.22% Y-o-Y. Meanwhile, growth in Real Estate services for Q2 2021 stood at +3.85%. The Administrative and Support Services recorded a growth rate of +4.79%. while real growth in Education year-on-year stood at 0.63% in Q2 2021, this represents a  24.76% points increase upon the growth recorded in Q12020(see Chart 3).

 

Chart 3:  Sectoral Growth in real terms (%)

 Proshare Nigeria Pvt. Ltd.


Source: NBS, Proshare Research

 

Across Borders

Nigeria's growth for Q2 2021 was  5.01% indicating that growth was slower than the US which grew by 6.5% on the back of a $1.9trn government spending which spurred increased consumer spending, improved job creation but rising inflation of 5.4%, a 13 year high. The French economy grew by 0.9% in Q2 while Germany missed a 2% growth expectation to manage a growth of 1.5% in Q2 2021.

 

The UK economy grew in the second quarter by 4.8% supported largely by the partial reopening of the economy in the previous month as final winter lockdowns were lifted.

 

How strong a recovery?

In its World Economic Outlook(WEO) the IMF retained its forecast for Nigeria's GDP growth at 2.5% FY 2021 and 2.6% FY2022, noting incteased economic activities, and commending the planned removal of petroleum subsidy, but pessimistic about the lack of uniformity of rates in the FX market.

 

A growth of 5.01% in Q2 2021 and a year-to-date (YTD) growth 0f 2.7% implies that the country is inching closer to IMF projections. However, given the fact that the growth seen in Q1 and Q2 have been supported largely by a 2020 low base effect which is expected to ease off by Q3, the recent result do not necessarily call for celebration. At any rate, with a growth of 2.5%, Nigeria's per capita GDP is still expected to drop by the year-end meaning that the average Nigerian may be poorer in real terms. The IMF has warned that the emerging cases of the delta variant of COVID-19 could slow down global economic recovery which would affect Nigeria.

 

Economists have recommended a crossbreed of structural and macroeconomic policy options.  According to these economic reviewers, there was a need to put hard and soft infrastructure in place to attract the much-needed Foreign Direct Investment into the country. The problems of institutional weaknesses, insecurity, and lack of uniformity in the FX market need to be addressed by the right set of policies. Additionally, the Central Bank of Nigeria (CBN) was urged to desist from financing budget deficits through ways and means as it was costly and imposed an inflationary tax on Nigerians.

 

The over-reliance of the government on oil receipts also requires fiximg by diversifying the economy. However, in the near-term efforts must be made to increase oil production as the figures from the oil sector show that despite the rise in the average crude oil price in Q1 2021, the fall in the country's oil output hasreduced its contribution to GDP.




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