• Monday, June 17, 2024
businessday logo

BusinessDay

UPDATED: Nigeria’s economy contracts 6.1% in Q2, first negative growth in 3yrs

Nigeria’s economy contracts 6.1% in Q2, first negative growth in 3yrs

Nigeria’s economy shrank for a second consecutive quarter in the six months through June and contracted by 6.1 percent in the second quarter of 2020, the National Bureau of Statistics (NBS) said on Monday.

This marks the first time the economy has contracted since 2017 and means the economy is now one quarter away from recession.

The Q2 2020 growth rate indicates a drop of -8.22 percentage points and a fall of -7.97 percentage points when compared with the 1.87 percent recorded in the first quarter of 2020.

Consequently, for the first half of 2020, real GDP declined by –2.18 percent year on year, compared with 2.11 percent recorded in the first half of 2019.

The figures published by the state-funded bureau was in line with BusinessDay’s earlier prediction of -6 percent.

This performance was recorded against the backdrop of significant global disruptions resulting from the COVID-19 public health crisis, a sharp fall in oil prices and restricted international trade.

“The decline was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the COVID-19 pandemic,” NBS said.

In a bid to curb the spread of the COVID-19 pandemic, the Federal Government imposed a five-week lockdown of economic activities in three key states lasting March 31 through May 4, 2020.

An annual economic contraction seems unavoidable for Africa’s most populous nation as five global rating agencies expect Africa’s top crude producer to shrink by as much as 6 percent by year-end.

The International Monetary Fund (IMF) downgraded its growth projection for Nigeria to -5.4 percent from -3.4 percent. The World Bank and McKinsey estimated that the economy would likely contract by about 3 percent, the worst since the 1980s.

The GDP numbers released by the NBS are a much steeper contraction than most analysts’ estimates of about 4-5 percent.

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 provides a strong indication that the Nigerian economy will enter a recession when the data for Q3 2020 is confirmed in October.

The data follows 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 US$30 average between March and May, the Q2 data showed the full brunt of the impact of Covid-19 on the Nigerian economy.

The data 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 numbers 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 31, 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 and 4am, while a ban on interstate movement remained except for agricultural 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 ban on interstate movements was also lifted.

In essence, while Q2 GDP data show the full impact of lockdown measures, the present quarter is beginning to show the second wave effects of the economic crisis caused by 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 percent 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 remained at US$44.61, compared to US$43.74 in July and US$40.27 in June. Though growing, it has not reached the levels of US$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 percent in its GDP growth in Q2, following that of the US of 32.9 percent.

Kenya’s data for the same period have not been released but the economy grew 4.9 percent in the first three months of the year, while analysts’ estimates show an expectation of a 44.5 percent contraction for South Africa for the Q2 period.