Nigeria: Economy returns to growth in the fourth quarter
The economy returned to growth, albeit marginally, in the final quarter of last year, with GDP expanding 0.1% year-on-year. The print swung from the third quarter’s 3.6% contraction and beat market expectations of a 1.9% decline.
The uptick in the headline came on the back of an improvement in the non-oil sector, as activity expanded 1.7% year-on-year in Q4 (Q3: -2.5% yoy). Moreover, growth in the agricultural sector accelerated in the quarter (Q4: +3.4% yoy; Q3: +1.4% yoy), while services sector activity rebounded (Q4: +5.9% yoy; Q3: -1.0% yoy), despite ongoing coronavirus restrictions.
The oil sector, meanwhile, nosedived 19.8% in annual terms in the final quarter of 2020 (Q3: -13.9% yoy). The deterioration came on the back of a further drop in crude oil output, with production easing to 1.56 million barrels per day (mbpd) from the third quarter’s 1.67 mbpd amid OPEC+ production cuts. Moreover, still-low oil prices exacerbated matters for the sector.
Looking at the year as a whole, output in Nigeria’s economy fell 1.9% compared to the year prior, marking the first recession since 2016 and the steepest drop in at least three decades. The global health crisis and subsequent containment measures at home and abroad weighed notably on activity.
Turning to this year, economic growth is expected to firm as Africa’s largest economy is forecast to recover from the Covid-19-induced contraction. The gradual easing of restrictive measures domestically and further afield should strengthen domestic and external demand, and also boost the oil sector as demand for the commodity picks up amid greater road usage and recovering trade levels. That said, the balance of risks remains tilted to the downside amid lingering uncertainty over the evolution of the pandemic and vaccine availability, as well as the strength of the global recovery and the oil price trajectory. Elevated price pressures, high unemployment, security challenges and social tensions further cloud the outlook.
Jacques Nel, head of Africa macro at Oxford Economics, added:
“Rising oil prices will provide some support to the battered economy, but we do not expect oil prices to reach 2019 levels before 2024, meaning the Nigerian economy will have to adapt to the lower price environment.”