‘Second Quarter GDP May Be Nigeria’s Worst Performance in 2020’

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Dike Onwuamaeze

Agusto & Co, a pan-African rating agency has predicted that the recently released Nigeria’s second quarter (Q2) Gross Domestic Product (GDP) figures might turn out to the country’s worst performance this year.

The Lagos-based firm stated this in its August 2020, Economic Newsletter titled: “The Nigerian Q2 GDP COVID Contraction & 2020 Forecasts,” obtained yesterday.

The firm ascribed the sharp contraction of the real GDP by 6.10 per cent year-on-year in Q2, when compared to the 1.87 per cent growth rate recorded in Q1, to the distortions in economic activities and the collapse in oil prices during the second quarter as a result of lockdown measures implemented both domestically and internationally owing to the COVID-19 pandemic.
It also noted that the resilience of the Nigerian economy during the review quarter, compared to several economies such as the United States suffered a downturn of 9.5 per cent year-on-year in Q2, while the United Kingdom’s economy plunged by 21.7% year-on-year in Q2.

It added: “We are cautiously optimistic that we believe that Nigeria’s growth rate reflects the relatively lax implementation of lockdown measures across the country, especially in states outside of the nation’s economic powerhouses.

“Avoiding the worst of the pandemic in terms of infections and mortality has also helped mitigate the contractions while buoying consumer confidence ahead of the second half.
“Overall, the -6.10 per cent growth rate recorded in Q2 brings half year 2020 GDP growth rate to -2.18 per cent. At Agusto & Co., we maintain our forecast scenarios of -4.5 per cent in the best-case and -7 per cent in the worst-case for full year 2020.”

Its optimistic view notwithstanding, the Agusto & Co., maintained that the country’s economic outlook remained tapered in view of Nigeria’s persistent foreign exchange shortages, amidst the fragile oil market and reform inertia on the part of the government.

“There’s an estimated $7 billion of unmet dollar demand – with the backlog comprising of a $2 billion demand by manufacturers and $5 billion by foreign investors seeking to exit the Nigerian market. The reluctance to push ahead with tough reforms such as unifying the exchange rates is weighing heavily on sentiment, with the World Bank delaying its approval of Nigeria’s $1.5 billion loan request until October.

“Our view is that foreign exchange shortages will persist throughout the second half of the year, inhibiting growth as manufacturers increasingly struggle to source sufficient dollars to pay for imports – even as activities pick up,” Agusto & Co said.

It highlighted that the second quarter of 2020 was the first negative growth experienced in the non-oil segment of the GDP since Q3 2017.

“The non-oil sector accounted for 91.07 per cent of overall GDP in Q2 2020, a slight increase compared to the share recorded in Q1 2020 of 90.5 per cent. The largest contractions were witnessed in transport and storage, with a negative growth of 49.23 per cent; accommodation and food services at -40.2 per cent; construction at -31.77 per cent and Real Estate at -21.99 per cent year-on-year.

“The contractions in these sectors were largely driven by the effects of the lockdown measures especially with the ban on interstate travel (road and air) which affected local commute, travel and hotel lodging services,” it said.
It also noted that the oil sector GDP contracted by 6.63 per cent year-on-year in Q2 2020, a sharp fall compared to the preceding quarter in which the oil sector grew by 5.06 per cent year-on-year.
It attributed the contraction in oil GDP to the dual decline in production volumes and crude oil prices recorded during the quarter.

“Notably, oil production dipped by 0.26mbpd from an average of 2.07mbpd recorded in Q1 2020 to 1.81mbpd in Q2 2020, representing a decline in production volume of circa 14 per cent.
“The global oil market was pushed to the doldrums at the onset of Q2, with Brent crude price, a major global benchmark averaging $29.7 per barrel over the quarter as compared to the $50.3 per barrel average price recorded in Q1,” the company said, adding that, “in terms of contribution to overall GDP, the oil sector accounted for 8.93 per cent. This is a decline compared to the 9.50 per cent contribution recorded in Q1 2020 and 8.82 per cent in Q2 2019.”