• Rebound possible in second quarter

Kunle Aderinokun

Despite the recent rebound of crude oil prices at the international market, analysts have painted a gloomier economic outlook for the first quarter of this year, forecasting a weak growth rate for the economy.

By their analyses, the trajectory of weak economic growth, trending from 2015, the fourth quarter of which witnessed a gross domestic product (GDP) growth rate, slowing to 2.11 per cent (year-on-year) from 2.8 per cent of the previous quarter, would continue because oil prices would be southward notwithstanding the current recovery.

The National Bureau of Statistics last Tuesday announced that GDP grew by 2.11 per cent (year-on-year), in real terms, in the fourth quarter of 2015. This, it explained, was lower by 0.73 percentage points from growth recorded in the preceding quarter and also lower by 3.83 percentage points from growth recorded in the corresponding quarter of 2014.

In nominal terms, the value of the economy was put at N25.9 trillion for Q4 2015 and N94.1 trillion for the entire year 2015. The growth numbers came way below expectations and are the lowest since 2011 (post GDP rebasing era).

Analysts at Eczellon Capital posited that growth would likely weaken in the first quarter of this year.

According to them, “the prospect for the Nigerian economy in the first quarter of 2016 remains blurry. We expect GDP growth to come in lower than the 2.11 per cent achieved in Q4 2015.”

They attributed “record low oil prices at the beginning of the year and oil production challenges witnessed so far in the year,” adding “similarly, the foreign exchange crisis coupled with rising inflation and the inability of some states to meet their salary obligations should depress consumer demand further and thus, weaken the non-oil segment of the economy.”

The analysts however “expect a gradual rebound in economic activities in Q2 2016 largely on the back of the start of the implementation of the 2016 budget, which should spur economic activities in targeted sectors.”

They were of the opinion that “the actions and inactions of the economic managers have further worsened the Nigerian case. “A case in point is the fixation of the official exchange rate by the apex bank which has severely impaired investors’ confidence in the Nigerian economy. Similarly, the various administrative tools deployed by the bank were reactionary and unstable which further eroded confidence in the apex bank’s handling of the foreign exchange crisis. These inevitably created a vacuum in the nation’s FX markets and heightened uncertainties which in turn impaired investment and growth of the Nigerian economy in recent quarters.

Going forward, the Eczellon Capital analysts, suggested that, “as the Monetary Policy Committee (MPC) of the CBN sits on the 21st and 22nd of March, it is imperative for the Committee and the apex bank to provide guidance on the management of the nation’s currency.”

“In our view, this should entail the development of a roadmap that would allow for flexibility in the pricing of the naira, preferably through a managed floating system. Added to this would be the need for adequate support from the fiscal authorities to complement monetary policies. This support has largely been absent in recent times. This would invariably attract the needed investment into the country and set the economy on a sustainable growth path,” they added.

Analysts at Dunn Loren Merrifield, who hold the same view with the Eczellon Capital analysts on the GDP growth rate, stated that, “given the weak economic outlook induced by softening oil prices, the possibility of further contraction in domestic conditions are major concerns for economic growth in the short term.”

“Whilst we anticipate a recovery in GDP growth in the current fiscal year, we state that elevated risk to this outlook abounds. We however expect that the non-oil sector will continue to be the key driver of growth in 2016.”

The analysts were however of the belief that “the expected increase in government expenditure will buffer to an extent the negative impact of the decline in consumer spending on selected sectors” acknowledging “the government’s commitment to stimulate the growth of key sectors of the economy through the introduction of initiatives aimed at increasing fiscal revenues coupled with a stimulant approach based on injections of more efficiently collected revenues and blocking of leakages.”

But they concluded: “ Though we note that the main macroeconomic objective of the Federal Government is to improve national output through the use of a government expenditure-led growth strategy during the fiscal year, we revise our average growth projection downwards to c.3.0 per cent – 3.5 per cent for 2016. Current economic realities point to the fact that there is an urgent need to spur economic growth through complementary fiscal and monetary policies.”

Similarly, echoing the same position as the others, analysts at FBNQuest posited that, “if oil output is flattish, we see growth in Q1 at no more than 2.0 per cent year on year . Benefits from the projected sharp rise in capital spending in the FGN’s budget proposals will not really be felt until half year 2016.”