When the National Bureau of Statistics (NBS) releases the much anticipated Nigeria’s second quarter ( Q2) GDP figures later today, it will show that the economy contracted by about 6 percent year-on-year( y/y).
This will be the deepest hit of any quarter in the history of Nigeria’s economic growth trajectory.
It is a much steeper contraction than most analysts’ estimates of about 4% to 5%, and will mean a decline of about 8% when compared with the first quarter of this year when the economy recorded a tepid 1.87% growth rate.
Though not unexpected given the initial lockdown measures in Lagos, Ogun, and the FCT to contain the spread of Covid-19 in April and May, it will provide a strong indication that the Nigerian economy will enter a recession when the data for Q3 2020 are confirmed in October. The data expected today followed that released for Q1 2020 that reflected the start of the cycle of the emergence of Covid-19 in Nigeria.
In Q1, while the impact had surfaced in the form of lower oil prices, with oil prices below the $30 average between March and May, the Q2 data are much anticipated because they are expected to show the full brunt of the impact of Covid-19 on the Nigerian economy.
It will show the impact of the near closure of the economy with devastating and direct impact on transport and air travels, hospitality and banking, construction and trade sectors, all reflecting government restrictions during the period.
Just as the Q1 and Q2 mirror the trajectory of the measures taken to contain the virus, the expectation is that the third quarter will follow the same. Since the initial lockdown of March 30, the Federal Government has implemented three different phases of opening up the economy. The first phase of reopening from May 4 to May 30 allowed markets and banks to open three times a week, so people could restock food and essential supplies, but imposed curfews between 8pm and 6am.
The second phase of reopening from June 1 to June 30 allowed banks and government offices to open for longer periods of time and imposed a narrow curfew between 10pm – 4am, while ban on interstate remained except for agriculture produce, petroleum products, manufactured goods and essential services. All airports also remained closed to domestic and international flights. The third phase allowed schools to reopen for graduating students and interstate movements were also opened.
In essence, while Q2 GDP data will show the full impact of the lockdown measures, the present quarter is beginning to show the second wave effects of the economic crisis of Covid-19, and this will be the concern and worries in Abuja.
For instance, if, as expected, the Nigerian economy enters recession by another negative growth in Q3, it will mean a second economic recession in a matter of four years, following that of 2016. Indeed, analysts at FSDH project a near 5% decline for the year.
The likelihood of a recession and worsening economic conditions is best understood by the scale of the response provided by the government under its Economic Sustainability Plan (ESP). Under the plan, led by the Vice President Yemi Osinbajo, the government planned a N2.3 trillion injection into the economy.
However, about N500 billion of that was already in the 2020 budget, while the N1.1 trillion expected from the Central Bank of Nigeria will require collaterals, showing the limited policy and fiscal space for the government to tackle the present economic crisis.
The medium-term outlook for the economy will continue to be shaped by the management of the Covid-19 patients and the spread of the pandemic, both domestically and internationally. Domestically, the data show that the country has gone through the most difficult periods in May and June. The expectation now will be for a quick oil price recovery. This month, average oil prices remains at $44.61, compared with $43.74 in July and $40.27 in June. Though growing, it has not reached the levels of $63 experienced in January.
As Nigerians start to chew on the Q2 data, they will be in good company all over the world. The UK recorded a contraction of 20.4% in its GDP growth in Q2, following that of the US of 32.9%. However, Kenya’s data for the same period have not been released but the economy grew 4.9% in the first three months of the year, while analysts’ estimates show an expectation of a 44.5% contraction for South Africa for the same period.
