Q4’17 GDP: Seasonal Rebound in the Non-oil Sector Strengthens Economic Recovery

Proshare

Monday, March 05, 2018/ 1.20 PM / PwC 

Economic recovery gains momentum
 
Nigeria’s economy consolidated its ongoing recovery in Q4’17, as real GDP expanded by a strong 1.9% y/y, the highest quarterly growth since Q4’15. This was driven by the non-oil sector which rose 1.3%y/y, the highest in eight quarters, reflecting strong improvements in the agriculture, manufacturing and services sectors (92.6% of GDP). Meanwhile, the oil sector received a boost from a 150,000 barrels per day increase in oil production to 1.9mbpd, expanding 8.3%y/y. In full year terms, real GDP increased 0.8% y/y in FY’17, largely in line with our estimate of 0.7% 1 y/y . 

Strong seasonal harvest spurs agriculture output
 
Agriculture GDP increased by 4.2% y/y in Q4’17 (Q3’17: 3.0% y/y), as a result of improvements in crop production (89.8% of agriculture output). Agriculture output generally 2 peaks in Q4, a reflection of the crop harvest season , specifically for tubers and grains. Also, this would partly provide an explanation for the sharp moderation in the monthly increase in food inflation in Q4’17. Agriculture’s contribution to real GDP growth at 1.1% was the highest in five quarters. 

Festive demand supports manufacturing output
 
The manufacturing sector advanced by a marginal 0.1% y/y (Q3’17: -2.9% y/y), due to stronger output in the food and beverage (2.1% y/y), and textile, apparel and footwear (1.6% y/y) sectors, a reflection of modest demand from the yearend festive season. Similarly, manufacturing output improved at -0.2% y/y in FY’17 (FY’16: -4.3% y/y), the best performance in 3 years. This is however weaker than the 4- year annual average growth of 16.7% y/y, recorded prior to the 2015 currency crisis. 

Increased trade activities boost services output
 
The services sector recorded some improvement, despite declining -0.5% y/y in Q4’17 (Q3’17: -2.9% y/y). This was driven by a 2.0% y/y growth in trade (Q3’17: -1.74% y/y), and an improvement in information and communication which contracted -1.4% y/y (Q3’17: -4.4% y/y). Overall, there is still some weakness in the services sector with real GDP growth at -0.6% y/y in FY’17 (FY’16: -1.1% y/y). 

Macroeconomic stability and increased spending to support real GDP growth 2% y/y in 2018
 
We maintain our forecast of real GDP growth at 2.0% y/y for FY’18, due to our expectation of stability in oil production. In particular, we expect significantly higher oil sector growth in Q1’18 due to base effects. Similarly, we expect increased government and pre-election spending to boost the weak consumer spending. However, we note that growth may be offset by a slowdown in investments due to the uncertainty usually associated with elections in Nigeria. 

Overdue reforms continue to derail return to long term growth rate
 
Despite our expectation of stronger growth in 2018, we believe the prolonged delay in implementing overdue reforms in the economy will continue to drag growth. These include: slow progress with the power sector reforms, absence of full deregulation of the downstream petroleum sector and the multiplicity of exchange rates which constrains investments and makes the economy vulnerable to shocks in the oil sector. Hence, growth will remain considerably below the long-term economic and population growth rates of 6.7% and 2.7% respectively.  

Proshare Nigeria Pvt. Ltd.

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