Nigeria is now a short crawl away from another recession after the latest gross domestic product (GDP) figures released Monday showed Africa’s most populous nation recording negative growth in the second quarter (Q2) of 2020.
The Nigerian economy contracted by 6.1 percent in Q2 2020, from a growth of 1.87 percent in the preceding quarter, to record its worst quarterly performance on record, the National Bureau of Statistics (NBS) noted.
That is the first negative growth in about three years when the economy managed to limp out from a lengthy recession in 2016. It is also the deepest contraction since 2004, as the recent economic lockdown to contain the spread of the novel coronavirus weighed on economic activities.
Both the oil and non-oil sectors shrank by 6.05 percent and 6.63, respectively
With businesses still reeling from the health and economic impact of the pandemic, economists and analysts say another recession may be on the way for Nigeria, as they expect another quarter of negative growth in Q3.
“As we await Q3’20 results, it is no longer a question of whether Nigeria will experience a second recession in 4 years. It is how quickly we can navigate back to safety,” Yomi Olugbenro, a partner and the West Africa Tax leader at Deloitte, states.
“Will it be a protracted recession, slow recovery, fast recovery or a depression,” Olugbenro says in a tweet.
Bismarck Rewane, CEO, Financial Derivatives Company (FDC), notes, “Technically, Nigeria is in a recession. How severe, how long and what steps should be taken immediately to reduce the impact of the recession, the length and duration, is what policymakers should be focusing on.”
A 2014 collapse in global oil price that resulted in five quarters of negative growth pushed Africa’s biggest economy into some of its worst macroeconomic forms.
Since then, growth in the country has averaged around 2 percent, crawling behind population growth of 2.6 percent. This has made its citizens poorer as the country’s per capita has remained on a downward trend.
Nigeria’s economy had barely healed from the 2016 induced recession before the pandemic struck.
According to the International Monetary Fund (IMF), Nigeria entered the pandemic in a weak economic position, including inflation that was roughly three times the average in peer countries as well as falling real per capita income.
A second recession in four years could throw the country into a dire state, worse than what was seen in 2016, according to analysts who spoke with BusinessDay.
“Even before this contraction, the economy has not recovered fully from the 2016 recession because marginal albeit positive growth was driven by few sectors including oil and ICT. But with this contraction, there is every possibility that it might take another one to two years before the economy goes back to pre-pandemic growth level,” Damilola Adewale, a Lagos-based economic analyst, says.
At least, 33 subsectors recorded negative growth out of a total of 46 sectors in the second of 2020, a pointer to how hard-hit the Nigerian economy is impacted.
Growths were mainly seen in the financial, telecoms, and coal and mining subsectors.
With the present negative growth, the Nigerian economy is in critical dire straits as it is confronted with three critical macroeconomic issues (soaring unemployment, rising consumer prices and economic downturn).
Headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 11-consecutive months, reaching a 27-month high of 12.8 percent in July, while Nigeria’s unemployment rate came to 27 percent in Q2 2020, as more and more were rendered jobless from the impact of the pandemic.
“With economic growth staying in the negative and the population growth is not contracting, a clear sign of more Nigerians becoming poorer are unfolding,” Abiodun Keripe, head of research at Afrinvest Limited says.
More than three renowned global institutions including the IMF, the World Bank and McKenzie, as well as various domestic investment and research houses have said a technical recession is in the cards for Nigeria.
The IMF forecasted the Nigerian economy to contract by 5 percent in 2020, while the economy is expected to shrink by 3 percent and 8 percent based on estimates by the World Bank and McKenzie, respectively.
For Africa’s largest economy, entering into an inevitable recession might take until 2023 for it to start recording any meaningful growth, according to Jesmin Rahman, IMF mission chief and senior representative in Nigeria.
But with a 6 percent contraction in Q2 2020, the economy would have to contract as much as 8 percent both in the third and fourth quarters for its annualised growth to be in line with IMF estimate.
Analysts who spoke with Businessday all agreed that although a recession is inevitable, the Nigerian economy would show some resilience so as not to record the same deeper cut in Q3 and Q4 as seen in the second quarter.
According to the analysts, there has been a gradual phasing out of total lockdown measures enacted in Q2 as well as an uptick in oil prices, which is expected to spur activities.
However, the downside to this they say might be the country’s dollar illiquidity, which is squeezing the lives out of businesses as manufacturers find it difficult to import raw materials for production.
“The outlook for the next quarter will still be negative but better than Q2 as the economy gradually reopens, but the oil sector will still be a major drag as we saw greater compliance with the OPEC cuts in Q3. But overall, we have properly seen the worst of the economic downturn,” says Omotola Abimbola, a macro and fixed-income analyst at Lagos-based Chapel Hill Denham.
The government expects the country to be out of recession by Q1 2021 if a N2.3 trillion fiscal stimulus included in the Economic Sustainability Plan (ESP) is implemented strictly.
