Nigeria’s Q3 GDP data showed that ongoing weakness in the oil sector was more than offset by a rebound in the non-oil economy and we expect this two-speed recovery to continue over the coming quarters.
- Nigeria’s Q3 GDP data showed that ongoing weakness in the oil sector was more than offset by a rebound in the non-oil economy and we expect this two-speed recovery to continue over the coming quarters.
- Figures released over the weekend showed that Nigeria’s GDP fell by 3.6% y/y in Q3, a more moderate pace of contraction compared to Q2 when output shrunk by 6.1% y/y. The outturn was better than our forecast for GDP to drop by 6.2% y/y, and the Bloomberg consensus estimate of a 5.3% y/y fall.
- The oil sector performed worse in Q3 compared to Q2 on the back of deeper output cuts. An OPEC+ deal pushed down average monthly oil production from 1.7mn bpd in Q2 to 1.5mn bpd in Q3. (See Chart 1.) This translated into a sharper fall in oil GDP, from a 6.6% y/y drop in Q2 to a 13.2% y/y plunge in Q3.
- Weakness in the oil sector was more than offset by a rebound in the non-oil sector. (See Chart 2.) Compared to a 6.0% y/y drop in non-oil GDP in Q2, output in the non-oil economy was down by just 2.5% y/y in Q3. The manufacturing and construction sectors recovered strongly as restrictions on activity were gradually eased. The telecommunications sector continued to post double-digit growth. (See Chart 3.)
- Looking ahead, the two-speed recovery in Nigeria’s economy will probably continue over the coming quarters as the oil sector struggles and activity in non-oil economy picks up further. OPEC+ quotas will weigh on oil output in the coming months and it looks increasingly likely that the current output allocations will be extended into Q1 2021, keeping growth in the sector depressed.
- The recovery in other parts of the economy will continue, albeit with some headwinds. Disruptions from nationwide protests in October probably dented activity in Q4. And while daily new COVID-19 cases remain low by regional standards, there are signs of an uptick in cases. (See Chart 4.) With a widespread rollout of a vaccine still some months away, this risks triggering a tightening of virus containment measures.
- We doubt that that the release of Q3 GDP data will spur policymakers into action. The benchmark rate will probably be left unchanged at 11.50% at Tuesday’s MPC meeting and the easing cycle is unlikely to be resumed until after inflation has peaked in early 2021.
Chart 1: Oil Production (mn bpd)
Chart 2: GDP (% y/y)
Chart 3: GDP By Sector (% y/y)
Chart 4: Daily New COVID-19 Cases
Sources: NBS, Johns Hopkins, Refinitiv, Capital Economics
Virág Fórizs, Africa Economist, firstname.lastname@example.org