Friday November 26, 2021 / 08:55 AM / by FDC Ltd / Header Image Credit: FDC Ltd
It has been four consecutive quarters of positive growth since the economy last contracted in Q3'20 (-3.62%) in the wake of the adverse impact of the COVID pandemic. In line with expectations, the economy expanded in Q3'21 - by 4.03%, even though it slowed marginally by 0.98% from 5.01% in Q2'21. This brings the average growth rate in 2021 to 3.18%, 0.58% above the World Bank's forecast (2.7%).
Will the positive momentum be maintained in Q4?
We expect the Nigerian economy to slow further in Q4'21 as base effects fade away. The economy will receive some support by increased aggregate demand ahead of Christmas. However, this will be limited by weakened purchasing power. So far in 2021, the average price of domestic commodities has risen by over 50%. Hence, we project a positive but slightly lower GDP growth rate of 3.5% in Q4. This could potentially bring the average GDP growth in 2021 to 3.26% - 5.64%.
In spite of the positive numbers in Q3'21, and the upward revisions to Nigeria's 2021 and 2022 GDP growth forecasts by the both the IMF and the World Bank, policymakers will not be oblivious to Nigeria's growth problem. There was a slowdown and contraction in the Agric (1.22%) and petroleum (-10.73%) sectors respectively, which are key drivers of the economy. The agric sector employs over 50% of the labour force and contributes the most to GDP (29.94%) while the oil sector is a major source of revenue and foreign exchange earnings.
Nigeria needs consistent reforms to achieve sustainable growth
Nigeria's current growth rate is still significantly below the potential growth of 8.9%, suggesting that the economy is in need of massive investment to unlock its idle resources. The IMF in its Article IV has reiterated the need for policymakers to remove subsidies and implement revenue-based fiscal consolidation, reduce administrative measures and allow for a marketclearing unified exchange rate while supporting the recovery but remain vigilant against inflationary and stability risks.
These recommendations are crucial to boosting investment and achieving sustainable growth. This is because of the multiplier effect of investment on growth. Nigeria's investment to GDP ratio is currently 29.4%.