Strong GDP growth requires fiscal reform stimulus

The disappointing GDP growth result as announced on Tuesday by the National Bureau of Statistics (NBS) has attracted the attention of analysts within and across the country who believe that firmer GDP growth requires stronger fiscal reform stimulus.

“A disappointing GDP result yet again for Nigeria, with growth decelerating to 1.9 percent year/ year in second quarter (Q2-2019, from a revised 2.1 percent y/y in first quarter (Q1) said, Razia Khan, Chief Economist, Africa and Middle East, Global Research, Standard Chartered Bank, who also said “although Q2 disappointed our expectation, weak growth itself should not have been too much of a surprise.”

Although oil GDP posted a healthy growth rate (rising 5.2% y/y from a contraction in Q1, likely driven by increased production), this was insufficient to fully offset

weak non-oil GDP growth.

Agriculture appears to have been a key factor dragging down non-oil GDP growth, despite an expansion in crop production. Other sectors of the economy also experienced weakening momentum, following the ‘lift’ provided by elections in Q1 2019.

Khan said with Nigeria’s government only inaugurated at the end of May, Q2 represented something of a lost, post- election quarter, as policy certainty will only have crystallised with the eventual appointment of a new cabinet.

She said the recovery in oil GDP looks promising. However given softer oil prices in subsequent quarters, this pace of growth (driven also by output expansion) may not be sustained.

“While the authorities announced a more pro-growth policy stance, with the CBN putting in place measures to encourage bank lending, external pressures, and pressure on the NGN each time we see a risk-off environment globally, highlights the limits to Nigeria’s plans for any sustained monetary stimulus,” Khan added.

Also responding to the development, Ayodele Akinwunmi of FSDH, said Nigeria growing at 1.9 percent is not the kind of growth to be celebrating.

He noted that some critical sectors of the economy performed poorly. For instance, the real estate exited depression in the first quarter but entered contraction in the Q2.

According to Akinwunmi, oil and gas driving economic growth is not sustainable, growth not impressive, not inspiring.

“Efforts need to be made to ensure we stimulate economy,” he said.