Nigeria: Economic growth accelerates in the second quarter
The Nigerian economy expanded 3.5% year on year in the second quarter, accelerating from the first quarter’s 3.1% expansion. Furthermore, sequential data pointed to a recovery in underlying momentum as the economy contracted 0.4% sequentially in the second quarter, up markedly from the first quarter’s 14.7% dive.
The annual acceleration was driven by a softer contraction in the key oil sector. The sector’s output contracted 11.8% in the second quarter over the same period a year prior, which was softer than the first quarter’s 26.0% plunge. Oil production moderated in the period to 1.43 million barrels per day (mbpd) from 1.49 mbpd in the first quarter. The sector suffers from security issues related to theft and lingering instability in the Niger Delta. Meanwhile, the non-oil sector, which has been the key engine of growth since late 2020, expanded at a softer pace of 4.8% in Q2 (Q1: +6.1% yoy). This was chiefly driven by moderating growth in the agricultural and services sectors. The latter likely felt the pinch of greater inflationary pressures eroding real incomes. The industrial sector, lastly, bounced back in the period and expanded 2.3% (Q1: -6.8% yoy).
The economy should have kept a similar pace of growth in the third quarter despite numerous headwinds. Private-sector operating conditions improved at a robust clip in July–August. However, risks are skewed to the downside. The slow domestic vaccination drive will see Covid-19 remaining a feature of the economy in some form; less than a fifth of the population received the first dose by 21 August, and less than 14% are fully vaccinated. Furthermore, elevated unemployment and heightened price pressures will dampen household spending, while security issues and social tensions pose additional downside risks.
Despite the numerous headwinds, the Nigerian economy is expected to record solid growth this year and next. Analysts at the EIU added:
“Nigeria’s economy does have a knack for running at a low but positive rate of growth even when faced with high inflation, currency weakness (in this case on the parallel market) and rampant instability, affecting agricultural output in particular. […] Added to the mix so far in 2022 has been a decline in oil production, power shortages and monetary tightening.”