Nigeria: Economic growth gains some traction in Q1, but remains frail
Economic growth gained some momentum in the first quarter of the year, although it remained frail. GDP increased 0.5% year-on-year, up from the prior quarter’s 0.1% expansion, but undershooting market analysts’ expectations.
The uptick was driven by a markedly softer drop in the oil sector, which contracted 2.2% in the first quarter following the 19.8% dive logged in the prior quarter. The improvement came on the back of higher output, with production rising to 1.72 million barrels per day (mbpd) in Q1 from 1.56 mbpd in Q4 2020. Moreover, higher crude oil prices further supported the sector’s performance.
The non-oil sector’s performance, however, deteriorated as activity grew 0.8% year-on-year, down from the 1.7% expansion recorded in the prior quarter. This came partly on the back of softer growth in the agricultural sector (Q1 2021: +2.3% yoy; Q4 2020: 3.4% yoy), while output in the information and communication sector also moderated. Meanwhile, the downturn in the transportation and storage sector deteriorated notably. More positively, activity in the manufacturing sector rebounded, and the drops in the mining and quarrying, and financial and insurance sectors eased.
Looking ahead, the economy should continue to grow at a stronger pace this year. The gradual easing of restrictive measures at home and abroad will firm aggregate demand and boost the oil sector. However, the balance of risks remains tilted to the downside amid lingering uncertainty over the evolution of the pandemic and vaccine availability, and the oil price trajectory. Elevated price pressures, high unemployment, security challenges and social tensions further cloud the outlook.
Commenting on the release, Andrew Matheny, analyst at Goldman Sachs, added:
“We expect output to rebound substantially in 2021Q2, as the Covid-19 situation in the country and worldwide improves, and higher oil prices during the year should enhance the recovery of the oil sector. Further, the recovery in oil prices, together with an adjustment of imports to the weaker Naira exchange rate, implies that the current account deficit largely closed in 2021Q1, having widened to 5.0% of GDP in Q4 2020. As the ratio of imports to GDP has normalised and as imports already reflect the more depreciated parallel-market Naira exchange rate, we interpret the current account rebalancing and its adjustment to the new oil price/Naira exchange rate equilibrium as having largely taken place, which we believe will facilitate economic expansion going forward.”