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Nigeria’s economy suffered its worst contraction in over a decade, data showed yesterday as the crash in oil prices and the global fallout from COVID-19 crisis hit output in key sectors.
The Gross Domestic Product (GDP) shrank 6.1 per cent in Q2’20 compared with growth of 1.87 per cent in the previous quarter, the National Bureau of Statistics (NBS) said in its latest GDP report released yesterday.
The contraction in Q2’20 also ended the three-year trend of marginal but positive growth era the Nigerian economy had after exiting recession in Q2’17.
The latest GDP data shows that key sectors of the economy – oil and non-oil sectors – recorded contractions, a development NBS attributed to the outbreak of coronavirus, which compelled many nations to enforce restrictions.
Specifically, the oil sector contracted by -6.63 per cent (year-on-year) in Q2’20, indicating a decrease of –13.80 per cent points relative to the rate recorded in the corresponding quarter of 2019. Growth decreased by –11.69 per cent points when compared to Q1’20, which recorded 5.06 per cent.
The report also shows that an average daily oil production of 1.81 million barrels per day (mbpd) was recorded, which was -0.21mbpd lower than the daily average production of 2.02mbpd recorded in the same quarter of 2019 and –0.26mbpd lower than the first quarter 2020 production volume of 2.07mbpd.
The oil sector contributed 8.93 per cent to total real GDP in Q2’20, down from figures recorded in the corresponding period of 2019 and the preceding quarter, where it contributed 8.98 per cent and 9.50 per cent respectively.
NBS said 13 activities recorded positive real growth compared to 30 in the preceding quarter. “In the quarter under review, aggregate GDP stood at N34.02 million in nominal terms, or -2.8 per cent lower than the second quarter of 2019, which recorded an aggregate of N35.01 million.
“Overall, the nominal growth rate was –16.81 per cent points lower than recorded in the second quarter of 2019 and –14.81 per cent points lower than recorded in the first quarter of 2020,” it added.
However, agriculture and telecommunications recorded positive growth during the period under review. “The non-oil sector declined by –6.05 per cent in real terms during the reference quarter (Q2 2020). It was the first decline in real non-oil GDP growth rate since Q3 2017.
The recorded growth rate was –7.70 per cent points lower, compared to the rate recorded during the same quarter of 2019 and –7.60 per cent points compared to the first quarter of 2020,” the report added.
Still, non-oil sector output was driven by financial and insurance (financial institutions), information and communication (telecommunications), agriculture (crop production) and public administration, moderating the economy-wide decline.
“In real terms, the nonoil sector accounted for 91.07 per cent of aggregate GDP in the second quarter of 2020, slightly higher than the share recorded in the second quarter of 2019 (91.02 per cent) as well as the first quarter of 2020 (90.50 per cent),” the NBS noted.
Agriculture contributed 23.92 per cent to nominal GDP, higher than the rates recorded for the second quarter of 2019 and the first quarter of 2020, which recorded 19.39 per cent and 20.88 per cent respectively.
In the manufacturing sector, real GDP growth in Q2’20 was -8.78 per cent (year-on-year), lower than the same quarter of 2019 and the preceding quarter by –8.64 per cent points and -9.21 per cent points respectively.
Growth rate of the sector on a quarter-on-quarter basis stood at –13.17 per cent, lower than the quarter- on-quarter growth rate recorded in the preceding quarter of 2020. Real contribution to GDP in Q2’20 was 8.82 per cent, lower than the 9.08 per cent recorded in second quarter of 2019 and the 9.65 per cent recorded in the first quarter of 2020.
Trade’s contribution to GDP was 14.28 per cent, lower than the 16.07 per cent it represented in the previous year and the 16.08 per cent recorded in Q1’20. However, information and communication recorded a growth rate of 15.09 per cent in real terms, year-on-year.
Reacting to the latest GDP report, Prof. Uche Uwaleke, a former Head, Banking and Finance Department at Nassarawa State University, said given the massive crash in activities during the period under review, the data was not surprising.
“It is easy to see why this happened. The negative impact of COVID-19 on health, which resulted in lockdowns and supply chain disruptions, the collapse in crude oil price and reduction in output in compliance with OPEC+ agreement, the illiquidity in the forex market and the lingering insecurity in the country are to blame.
“This explains why the agriculture sector managed to eke out a growth rate of 1.58 per cent and manufacturing, trade and so many other sectors recorded negative growth. The lockdown and movement restrictions really affected the accommodation and food services sector, which declined by as much as 40 per cent. “I think this is going to be the worst this year.
A negative real GDP growth is also most likely to be recorded in Q3’20, but the size will be smaller as the economy gets restarted and crude oil price gradually picks up.
To ensure the impact of these economic headwinds is moderated, it is important to increase the size of the various interventions by government and CBN and ensure they are well targeted and implemented,” he said.
Also reacting to the report, the Managing Director, Cowry Asset Management Ltd, Mr. Johnson Chukwu, said: “Given the ease in lockdown, which began from the month of May 2020, coupled with the sustained rise in crude oil prices, we expect a slower GDP contraction rate in Q3’20; hence, the local economy may slide into recession in Q3’20. However, with the numerous stimulus packages, we expect Nigeria to be out of recession in 2021.”
Similarly, Chief Investment Officer, Sigma Pensions, Pabina Yinkere, stated: “We expect that Q3 2020 GDP numbers will show an improvement from the 6.1 per cent contraction in Q2 as world and domestic economies lift lockdown restrictions.”