Nigeria Gross Domestic Product Q3''18: Weak Growth Momentum Continues in Q3


Monday, December 10, 2018 02:48 PM / Vetiva Research


Nigeria’s economic growth for Q3’18 printed at 1.8% y/y, compared to Vetiva and Consensus forecasts of 1.5% y/y and 1.9% y/y respectively, driven by growth in the non-oil sector as the oil sector contracted 2.8% y/y during the period. The services sector (52% of the economy) led growth with a 2.6% y/y reading, trailed by manufacturing (9% of economy) and agriculture (29% of economy) which both grew at 1.9% y/y. Notably, Q3’17 GDP growth was revised downward from 1.4% y/y to 1.2% y/y, based on updated oil production numbers for the quarter.


2 million barrels a day of output projected in 2019

The National Bureau of Statistics estimated oil production for the third quarter at 1.94 mb/d, just below Vetiva estimate of 1.97 mb/d. As oil production came in lower y/y, the oil sector contracted 2.8% y/y. 

Proshare Nigeria Pvt. Ltd.


Early estimates from OPEC and the Ministry of Petroleum Resources suggests that October oil production was slightly above Q3 average, and we expect to end the year around 2 mb/d. OPEC data pegs Nigeria’s production at 1.75 mb/d (excl. condensates) in October, the baseline from which it must make cuts estimated between 0.04 and 0.05 mb/d as part of the OPEC deal in the first six months of 2019. Based on our condensates projection of 0.3 mb/d (2018 ytd is 0.22 mb/d), we forecast average oil production of 2 mb/d in 2019 (Bull: 2.1 mb/d, Bear: 1.8 mb/d), bringing 2019 oil sector GDP growth to 2.9% y/y.


Agriculture sector improves but cloudy outlook remains

Nigeria’s agriculture sector grew by 1.9% y/y in Q3’18, up from 1.2% y/y in Q2’18 but below even our conservative expectations. Crop production was the drag once again, showing the lasting effect of violence and flooding in the Middle Belt over the past twelve months. We expect the sector to post mildly stronger growth in Q4’18 (2.1% y/y) but forecast slow recovery in 2019 (2.6% y/y) even as violence abates in the region.


Industry growth persists, still vulnerable to foreign exchange

Industrial growth rose from 0.7% y/y in Q2’18 to 1.9% y/y in Q3’18, helped by moderating costs pressures and continued foreign exchange (FX) stability during the quarter. The main contributors to growth were the Food & Beverages (45% of manufacturing; 2.9% y/y growth) and Cement (9% of manufacturing; 8.1% y/y growth) sectors. We are unsurprised by the growth in the Cement industry as estimates of cement market size are up nearly 10% in 2018, and Nigeria’s major cement manufacturers posted healthy volume growth in Q3’18. The main drag on manufacturing was oil refining (2% of sector and -17.4% y/y growth) which was also unsurprising as data from the Nigerian National Petroleum Corporation shows that only the Warri refinery was functional in July and August and combined capacity utilization of the country’s public refineries fell to as low as 3%, the worst plant performance since February 2016. We expect manufacturing growth to be healthy again in Q4’18 (2.4% y/y) but note that stable FX supply and minimal currency depreciation are vital for continued industrial growth in 2019. In addition, we note that expected higher inflation would pressure raw material costs. More positively, we are hopeful for higher consumer spending power in 2019 in the event of the minimum wage hike implementation. Overall, we forecast 2019 GDP growth of 3.7% y/y for Nigeria’s manufacturing sector.


Proshare Nigeria Pvt. Ltd.


ICT drives services sector 

The services sector was the star of the Nigerian economy in the third quarter, notching GDP growth of 2.6% y/y—highest since Q4’15 growth of 3.4% y/y. However, this was mainly due to a 12.1% y/y GDP growth in ICT, on the back of impressive growth in telecoms. Stripping out the ICT sector shows just 0.5% y/y growth in services and points to persistent underlying economic weakness. Moreover, the Real estate sector (-2.7% y/y) shrank once again whilst Finance & Insurance contracted 4.8% y/y (Q2’18: +1.3% y/y). One notable green shoot beyond ICT was Trade, which posted positive growth of 1.0% y/y for the first time this year, and we are hopeful that this points to a turn in overall business conditions. 


2019: 2.7% y/y GDP growth expected 

Generally, we expect the final quarter of 2018 to be similar to the third quarter. In addition, election spending and delayed budget expenditure should support economic momentum. As a result, we forecast growth of 2.0% y/y in Q4’18, bringing FY’18 GDP growth to 1.8% y/y (IMF: 1.9% y/y). Looking at 2019, as oil sector growth is expected to be minimal, economic momentum is tied to the strength of recovery in non-oil sectors. We are not optimistic about the contribution of the agriculture sector to this cause given the recent significant upheaval in the sector, but we expect higher aggregate demand in 2019—driven by government spending and a minimum wage hike—to boost industrial output and services. We highlight price and FX instability and political jitters as the key risks to growth in 2019. Overall, we forecast 2.7% y/y GDP growth for the year.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Related News

1.       Nigeria’s GDP Grew By 1.81% YoY in Real Terms in Q3 2018 From 1.50% in Q2 2018

2.      Nigeria: Macro Economic Report for November 2018

3.      The Pivotal Role of FPIs

4.      Taxing Nigeria’s Fledgling Economy: Between Tax Penetration and Economic Recovery

5.      FAAC Disburses N741.84bn in September 2018 - NBS

6.      FSDH Discusses Possible Implications of Continuous Drop in Oil Prices for the Nigerian Economy

7.      Special Report On Nigeria’s 36 States and FCT: Economic, Fiscal, Sectoral and Wellbeing Profiles

8.     How To Un-Break The Nigerian Society And Economy

9.      A Petition For Action – Increase The 2019 Budget To A Minimum Of N15 Trillion – Tope Fasua

10.  Political Headwinds and Economic Challenges – LBS Executive Breakfast Session – Nov 2018

11.   Local Competitiveness: A Prerequisite for Inclusive Growth

12.  Low GDP Growth Rate in Nigeria: A New Norm?

13.  2018 Second Quarter GDP and The Missing Growth Syndrome

14.  Nigeria’s Q2, 2018 GDP Report: 5 Takeaways

15.   Nigeria’s GDP Grew by 1.50% YoY in Real Terms in Q2 2018

Related News