| Nigeria Economy |    1101 VIEWS  |
| Nigeria Economy | |
| 1101 VIEWS | |
 |
Wednesday,
November 25, 2020 / 08:05 AM / By FDC Research / Header Image Credit: Premium Times
The GDP numbers released on Saturday (November 21)
confirmed that Nigeria has officially fallen into a recession. The economy
shrank by 3.62% in Q3'20, the second consecutive quarterly contraction. Though,
it represents a slight improvement (2.48%) when compared to the negative growth
of -6.1% in Q2. The average growth in 2020 is now -2.62%. Q3 numbers reflect
the lingering impact of the COVID-19 induced lockdown and oil price shock on
the staggering economy. The oil sector recorded a deeper contraction of -13.89%
as domestic oil production fell to a 4-year low of 1.67mbpd. Of the 46
activities tracked by the NBS, 18 recorded positive growth compared to 13
activities in Q2'20, courtesy the gradual relaxation of the restrictive
measures.
Related
Link: Nigeria
Slips into Recession; Real GDP Contracts by -3.62% in Q3 2020 - NBS
The need for investment
friendly policies
The Nigerian economy is witnessing its second
recession in barely 5 years. It is more worrisome that policy makers do not
have adequate weapons to fight through and come out unharmed. This is because
the recession is happening at a time when oil revenues have been severely
affected. Also, investment flows as well as Diaspora remittances have
drastically declined as the COVID pandemic roiled all economies simultaneously.
The low interest rate environment, hyper-inflation and forex scarcity have also
made the Nigerian investment space relatively unattractive to investors. The
primary market T/bill rates slipped into negative territory (91-day: -0.01%) on
November 19 while inflation spiked to 14.23% in October, further widening the
negative real rate of return on investments. It is important that robust fiscal
and investment friendly policies are put in place to attract various investment
flows needed to spur economic growth.
Falling aggregate demand
could elongate the recovery path
Economic scholars encourage increased spending during
recessions to jumpstart the economy. However, in recent times, aggregate demand
remains subdued due to higher costs of living. The increase in electricity
tariffs and PMS prices has squeezed consumer disposable income. It is of great
necessity that the government significantly support households in a bid to fast
track economic recovery. At the recently concluded MPC meeting, the CBN was of
the opinion that the slower pace of economic contraction in Q3 highlights that
the negative GDP curve could bottom out and recovery could be as early as
Q4'20.
Oil and Non-oil Sectors
The oil sector recorded a deeper contraction of
-13.89% in Q3 from -6.63% in Q2. This was largely due to the combined effects
of dwindling oil prices and production. Oil prices averaged $43.34pb in Q3'20,
30.13% lower than an average of $62.03pb in Q3'19. Domestic oil production fell
by 9.24% to 1.67mbpd from 1.84mbpd in Q3'19. The sector contributed 8.73% to
total real GDP in Q3, down from 9.77% in Q3'19 and 8.93% in Q2'20.
The non-oil sector grew by -2.51% in real terms in Q3, -4.36% lower than the rate recorded in Q3'19 (1.85%) but 3.54% higher than in
Q2'20 (-6.05%). The sector's growth was driven mainly by telecommunications
(17.36%) and construction (2.84%). In real terms, the non-oil sector
contributed 91.27% to the national GDP in Q3'20, higher than its share in Q3'19
(90.23%) and Q2'20 (91.07%).
Sector breakdown - 18
positive, 28 negative
18 activities grew positively in Q3 relative to 13 in
Q2. The relaxation of the lockdown measures had a positive impact on sectors as
most of the activities slightly improved even though some remained in the
negative territory. The construction sector in particular recorded a positive
growth of 2.84% from a negative growth rate of -31.77% in Q2. The aviation
sector growth also improved to -38.86% from -57.38% in Q2. This is partly due
to the bailout funds it received from the government.
Outlook
The pace of economic recovery will be largely
dependent on the robustness of fiscal, investment and monetary policies. The
MPC at its just concluded meeting left all monetary parameters unchanged to
strike a balance between supporting economic growth and ensuring macroeconomic
stability.
Credits
The post Second
Recession in 5 Years: Urgent Need for Robust Fiscal and Investment Policies
first appeared in FDC Economic Bulletin released on Tuesday, November 24,
2020.
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