Nigeria: Economy contracts at milder pace in Q3
November 23, 2020
GDP tumbled 3.6% year-on-year in Q3 amid a still-weak energy sector and lingering effects of the Covid-19 pandemic. Although the drop marked the second consecutive quarter of declining output, slipping the economy into a technical recession, it was less severe than the 6.1% slump in Q2 and beat market expectations of a much greater contraction.
An improvement in the non-oil segment of the economy was behind the milder downturn. The non-oil sector shrank 2.5% on an annual basis in Q3 (Q2: -6.1% yoy), reflecting the reopening of businesses and firming of activity as pandemic-related restrictions were eased. The manufacturing, trade and real estate sectors in particular saw more modest falls in activity compared to Q2; notably, the construction sector rebounded back to growth. Meanwhile, agricultural production lost steam, with growth easing for the third successive quarter (Q3: +1.4% yoy; Q2: +1.6% yoy).
As for the all-important energy sector, conditions deteriorated even further, shrinking a massive 13.9% over the same quarter last year (Q2: -6.6% yoy). Aside from oil prices remaining subdued, crude production dropped to 1.67 million barrels per day (mbpd) as the country complied with OPEC+ cut agreements, marking the lowest level in four years (Q2: 1.81 mbpd).
Looking ahead, on the heels of the worst downturn in recent history this year due to the pandemic and oil price shock, the economy is seen emerging back to growth in 2021 as demand at home and abroad recover. However, the outlook remains fragile, clouded by uncertainty regarding the oil price trajectory, rising inflation, elevated unemployment, security challenges and social tensions.
Author: Javier Colato, Economist