Economy loses momentum in Q1

GDP growth moderated to 3.0% year on year in the first quarter, from 3.5% in the fourth quarter of last year. The reading came in below market expectations.

In Q1, both the oil sector and the non-oil sector lost steam. The oil sector grew 5.7% year on year, down from Q4’s 12.1% print. Meanwhile, growth in the non-oil sector decelerated slightly to 2.8% year on year in Q1 from Q4’s 3.1%. The agricultural sector lost steam, growing 0.2% in Q1 (Q4: +2.1% yoy). The deceleration was partly due to adverse weather conditions. Moreover, the construction sector posted a 2.1% contraction, swinging from the 3.7% expansion registered in Q4. On the flip side, the services sector grew 4.3% annually in the first quarter, edging up from the fourth quarter's 4.0% increase and marking the quickest growth since Q2 2023. In addition, manufacturing sector growth accelerated to 1.5% in Q1, from the 1.4% expansion recorded in the previous quarter.

Our panelists expect the economy to gather some steam in the upcoming quarters, supported by rising output at the Dangote oil refinery. Nonetheless, sky-high interest rates and inflation, coupled with a weaker naira year on year, will constrain activity. The security situation in the oil-producing Niger Delta and Central Bank policies are key factors to track.

Pieter Scribante, economist at Oxford Economics, commented on the outlook: “Exchange rate volatility, higher fuel and transport costs, in addition to food shortages remain unrelenting issues in Nigeria. At the same time, policy uncertainty and softening consumer spending dampen economic activity and growth. Private sector momentum is below potential; however, growth in the non-oil economy should start to rebound towards the end of the year. Moreover, we are cautiously optimistic that the hydrocarbon sector will support economic growth and offset some of the expected weakness in the private sector.”

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