Tuesday, May 24, 2016 9:48AM/FBNQuest Research
The latest data from the NBS show that GDP contracted at constant basic prices by -0.4% y/y in Q1 2016, compared with modest growth of 2.1% the previous quarter. This is the worst figure since 2011 in new national accounts and for several years previously.
This is generally the weakest quarter of the year due to systemic budget delays. The contraction of the oil sector slowed to -1.9% y/y but the non-oil economy, the motor of growth over the past decade, also entered negative territory (-0.2% y/y).
The shocking data stem ultimately from a slide in the oil price which has eroded government revenues. Additionally, oil production has fallen by up to 25% in recent months, a process which started in the quarter under coverage and has since worsened.
The dramatic fall in oil revenues has cut the supply of the fx for an import hungry economy. The CBN has rationed fx to contain the depletion of its reserves. Most importers therefore have either been driven to the parallel market or abandoned their orders. Manufacturing, a major consumer of fx, contracted by -0.7% y/y in Q1.
Without a marked recovery in oil price, which is not our view, over the next 18 months, the economy will struggle with these challenges. The FGN’s plan to remodel the economy cannot have a rapid impact.
The current quarter is unlikely to be any better once we make allowances for increased sabotaged oil pipelines, fuel shortages and the delays in the sign-off on the budget, from which capital disbursement are still awaited.