Why Nigeria’s economy slows every first quarter

… analysts say 2025 may not be different

If history is anything to go by, Nigeria’s economy is set for another sluggish start in the first quarter (Q1) of 2025.

It’s a pattern that has played out for over a decade— the fourth quarter (Q4) ends on a high, driven by festive spending and government splurging, only for Q1 to drag, weighed down by economic reality. This year may not be different.

According to projections from the LBS breakfast session for February 2025 report, GDP growth is expected to drop from 3.8 percent in Q4 2024 to 3.6 percent in Q1 2025, largely due to reduced post-festive spending — a slowdown often tied to ‘Detty December’ celebrations — and a dip in agricultural activity.

Bismarck Rewane, an economist and CEO of Financial Derivatives Company, highlights seasonality as the biggest factor behind the recurring trend.

Corroborating Rewane’s stance, Muda Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprises (CPPE) attributed the sluggish economic output in Q1 to “a lot of spending activities” in the last quarter, resulting in a “dull” January.

Yusuf added that the “uncertainty” in the first three months of the year means businesses may need to wait to get some clarity before they take some key investment decisions.

“GDP is normally slower in Q1. But we don’t know what the rebasing will bring. But if you follow the normal trend, Q1 is generally slower,” the former director-general of Lagos Chamber of Commerce and Industry said.

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Their views align with BusinessDay’s analysis, “Why Nigeria’s Q1 GDP Growth Lags Behind Q4: A Decade-Long Trend,” published a month ago, which noted that from 2014 to 2024, Q1 GDP growth has consistently lagged behind Q4’s performance.

Why does this happen every year?
Nigeria’s economic cycle is predictable: Q4 experiences a surge in spending, driven by Christmas shopping, travel, and the festive frenzy of Detty December.

In December 2024, Lagos recorded significant revenue, with the top 15 nightclubs generating N4.32 billion, averaging N360 million daily, while the tourism, hospitality, and entertainment sectors brought in $71.6 million, according to Idris Aregbe, special adviser to the Lagos State Governor on Tourism, Arts, and Culture. Hotels and short-let apartments accounted for $44 million and $13 million, respectively.

At the same time, government ministries rush to exhaust their budgets before the fiscal year closes, pushing money into infrastructure and public projects. Agriculture also peaks, with the harvest season boosting food supply and economic output.

Come Q1, the excitement fades. Households cut back on spending after the Detty December splurge, government expenditure slows due to new budget planning, and agricultural activity declines as farmers prepare for the next planting season.

This combination drags GDP growth down every first quarter, continuing a trend that has persisted for over a decade.

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The inflation factor
Beyond seasonal patterns, inflation remains a major concern. At 34.8 percent in December 2024, rising prices have weakened purchasing power, making it harder for consumers to sustain spending.

As reported by Bismarck Rewane in the LBS Breakfast Session of 2025, inflation is projected to ease slightly to 33.12 percent by the end of Q1 2025. However, at that level, it will still limit economic recovery.

While some experts agree with Bismarck that inflation is expected to decline slightly, they also warn that the pace of reduction will depend on currency stability and stronger local production.

Some analysts remain cautious, arguing that without decisive interventions, inflation could stay above 30 percent well into 2025, further straining businesses and households already battling rising costs.

The Purchasing Managers’ Index (PMI), a key measure of business activity, offers a glimmer of hope. It is expected to inch up from 52.7 in Q4 2024 to 53.0 in Q1 2025, suggesting some resilience in manufacturing and services.
But analysts warn that high borrowing costs and weak consumer demand could limit business expansion, with the Monetary Policy Rate (MPR) still at 27.50 percent making loans expensive.

Can the Naira stay stable?
Nigeria’s currency volatility is another critical factor shaping economic performance. The official exchange rate is projected to strengthen slightly from N1,535/$ in Q4 2024 to N1,400/$ in Q1 2025, helped by continued Central Bank of Nigeria (CBN) interventions. However, the parallel market remains volatile, with demand for dollars outpacing supply.

“CBN’s interventions have provided short-term relief, but without stronger non-oil exports and sustained investment inflows, the naira remains vulnerable,” warns economist Aisha Bello.

At the same time, Nigeria’s trade balance is expected to shrink from N5.81 trillion in Q4 2024 to N4.93 trillion in Q1 2025, partly due to increased imports following a likely extension of import duty waivers.

Breaking the cycle: What needs to change?
Economists agree that Nigeria needs to spread government spending more evenly throughout the year to avoid sharp fluctuations between Q4 and Q1. BusinessDay’s report a month ago reveals that the government should move away from last-minute Q4 budget spending and instead ensure more predictable expenditures across all quarters.

Rewane and other analysts also stress the urgency of diversifying Nigeria’s economy. Relying on agriculture and festive-driven consumption for economic boosts is unsustainable. Manufacturing, technology, and services must be developed as year-round growth drivers.

Now in the second month of Q1 2025, Nigeria is already experiencing the familiar seasonal slowdown that has shaped its economy for years. While inflation may ease slightly and business activity could see modest improvements, deeper structural reforms are needed to break this cycle.

Without balanced government spending, economic diversification, and a stable monetary policy, Nigeria risks repeating history—where every Q4 gain is quickly wiped out in Q1. The real question remains: Will 2025 be the year Nigeria finally learns from its past?