August 26, 2020 / 2:58 PM / By FSDH Research / Header Image Credit: FSDH
the GDP and Inflation 2020 Q2 slide deck and below are the key
1. The Nigerian economy
contracted by -6.1% in the second quarter of 2020.
- This represents the highest
quarterly decline since the first quarter of 2004 (-7.6%).
- The contraction in GDP was as a
result of the decline in crude oil price and the implementation of
lockdown and movement restrictions due to COVID-19.
- Nigeria joins the list of
countries - South Korea (-3.3%), Singapore (-41.2%), US (-9.5%), Germany
(-10.1%) - that experienced GDP contraction in Q2.
- For full-year 2020, we expect
the economy to contract by 4.6%.
2. Nigeria faces severe
stagflation as GDP declines, Unemployment & Inflation rise
- The impact of COVID-19 was
largely felt on output, employment and inflation.
- With COVID-19, many companies
engaged in non-essential items were forced to shut down operations.
- As a result, the total number
of individuals employed in the country declined to 35.6 million in 2020
Q2. Unemployment rate rose to 27.1% in the quarter.
- Key sectors such as
Agriculture, Trade and Manufacturing experienced significant job losses.
- A fall in output was also
accompanied by rising prices with inflation rate at 12.6% in June 2020.
Supply bottlenecks and value chain disruption were largely responsible for
the rise in inflation.
3. Both Oil &
Non-Oil GDP declined in 2020Q2 as a result of COVID-19
- The oil sector reversed its
positive growth trend and declined by 6.6% in the second quarter of 2020.
- The non-oil sector which had
been resilient was also affected by the lockdown and restrictions.
4. COVID-19: Nigeria's
resilient sectors in 2020Q2
the midst of the pandemic, the sector grew by 18.5% in 2020Q2 and retained its
position as the fastest growing sector in the quarter. The insurance segment of
the sector, however, experienced a decline.
Given the nature of the pandemic, the ICT sector, led by Telecoms, is one of
the gainers following the increase in teleconferencing, data usage and remote
working. The sector grew by 15.1% in the quarter.
Agriculture: Agriculture has remained resilient even during the economic recession
in 2016. Although the sector grew marginally by 1.6% in 2020Q2, it has
maintained positive annual growth rate for over three decades.
5. Nigeria-s FX
shortages could forestall economic recovery in H2
- GDP decline of -6.1% in the
second quarter of 2020 is the first negative growth since the first
quarter of 2017. In the first half of 2020, GDP growth averaged -2.12%.
- In H2, we expect this sluggish
economic performance to continue especially given the lockdown of key
sectors, the tough business climate and persistent challenges in the
- In addition, Nigeria's foreign
exchange challenge will play a major role in shaping economic outcomes in
2020H2. Already, there have been limited FX supply which has resulted in
depreciation of the currency in the parallel market.
- More recently, the CBN has
embarked on FX rationing and exchange rate adjustments, among other
measures, to reduce pressure on the Naira and maintain a stable exchange
- Drawing from experience during
the last recession, limited availability of FX as well as FX rationing
could have unintended consequences on broad economic aggregates such as
GDP, Inflation, external reserves and foreign investments.
- Growth of key sectors such as trade,
manufacturing and agriculture could also be constrained by limited
availability of FX to secure inputs.
6. Inflation rate rises
to 12.8% in July 2020
- Headline inflation rate rose to
12.82% in July 2020, a 26 basis points increase from 12.56% in June 2020.
- Increase in food inflation is a
major driver of overall inflation in Nigeria.
- The rise in inflation rate and
decline in 1 year Treasury bills rate extended the real interest rate gap
to -9.4 percentage points (pp) in July 2020 from 8.7 pp in June.
- Excess liquidity in the fixed
income space has suppressed yields since the last quarter of 2019.
- In relation to the Monetary
Policy Rate (MPR), real interest rate also expanded by 0.3pp in July.
- With inflation rate expected to
increase further in coming months, negative real return on investments is
expected to continue in 2020.
7. FSDH Projection
We project an inflation rate of 12.9% for 2020
and a GDP contraction of -4.6%.
Nears Recession with 6.1% Contraction in Q2-2020 - PFI Capital
GDP Drops by -6.10% in Q2 2020, Confirming Analysts Nightmares
GDP Contracts by -6.10% YoY in Real Terms in Q2 2020 - NBS
- Food Price
Pressure Stokes Inflation to 28-month High in July - PFI Capital
- It is Time
to Invest in the People of Nigeria
- Cracks In
The Bond Market?
Rate Will Remain Unchanged at 12.8% YoY in August 2020 - FBNQuest
Heads for New-High - PFI Capital Limited
Economy Heats Up As Inflation Rises to 12.82%
Inflation Increases By 12.82% YoY In July 2020; 0.26% Higher Than June
Households to Corporations, Economic Effects of COVID-19 Continue to
Ripple Across Nigeria
Unemployment Rate Grows By 27.1% As Economy Stutters
Unemployment Rate Moves Up to 27.1% in Q2 2020 from 23.1% in Q3 2018 - NBS
Inflation Fast Approaching the 13.0% Threshold Due to Cost Push Factors
- No Big
Change in FX Policy
- August 2020
Economic Insight: Social Distancing Persists at the IEW and BDC Segments -
Average Oil Production Declined by 13.9% to 1.52 mbpd QoQ
- NESG Board
Reviews State of Nigeria's Economy
Will Struggle as Recovery Proves Elusive - LBS Executive Breakfast Session
- Aug 2020
Macro Impact Report: The Macro Impact from COVID-19