By Emeka Anaeto, Business Editor
Against the backdrop of the fragile growth reported for Nigeria’s Gross Domestic Product, GDP, in the first quarter 2021, Q1’21, economists and financial analysts in some financial institutions in Nigeria have come out with divergent forecast of the 2021 year end outlook for the economy.
Total real GDP for the quarter stood at N16.83trillion as against N16.74trillion in the corresponding period of 2020, Q1’20.
The Q1’21 GDP data published last week by the National Bureau of Statistics (NBS) revealed that Nigeria’s economic recovery from the COVID 19-pandemic induced contraction of 2020 continued at a sluggish pace. Nigeria’s GDP in Q1’21 grew at a fragile rate of 0.5% Year-on-Year, YoY, but affirms the country’s exit from its second recession in the space of five years. The exit was recorded at a minuscule 0.1% YoY growth in Q4’20 to halt two successive GDP contractions of -6.1% and -3.2% in Q2 and Q3:2020 respectively.
The GDP performance in Q1:2021 was largely supported by the positive but weak growth in the non-oil sector, which expanded by +0.79% YoY, while the oil sector contraction also moderated relative to the preceding quarter by -2.21% YoY.
Following the release of the GDP report many experts from notable financial institutions presented a mixed bag of fortune in their insight on what the future holds for the economy in the short term.
Outlook appears mixed, but likely positive – Coronation Merchant Bank
Though analysts at Coronation Merchant Bank are of the view that factors on ground suggest mixed outcome for the GDP months down the year, they, however, arrived at a conclusion that growth would accelerate in subsequent quarters of the year.
They stated: ‘‘The average price year-to-date is US$63.19/bbl, 46.21% higher than the average of US$43.22/bbl in 2020. Last week, oil prices fell after getting caught up in the broader selloff in commodities.
‘‘However, talks of an imminent return of Iranian oil to official oil markets was the primary drag on prices as talks progressed on the Iran nuclear deal. ‘‘Overall, the supply and demand balance remains supportive as increased demand is expected in the summer as the widespread vaccine rollout continues and international travel resumes.
‘‘Our view is that oil prices are likely to remain well above the US$60.00/bbl mark for several weeks, and quite possibly several months.
‘‘Oil & gas contracted by 2.21% YoY in Q1’21, but this was much better than the 19.76% YoY contraction in Q4’20. Note that oil is usually sold three to six months forward, so the full benefits of recovering oil prices were not felt in Q1, but are likely to be evident in Q2 and Q3.
‘‘The overall picture is mixed. Clearly, it is likely that the GDP growth rate will speed up, especially as the Oil & gas sector begins to enjoy strong prices later in the year.
‘‘For the economy to reach the IMF’s forecast of 2.5% growth in 2021, in our view, it would be important for agricultural growth and telecoms growth to accelerate going forward from Q1.’’
Positive outlook but insecurity remains major threat – Renaissance Capital
Analysts at the multinational financial group, Renaissance Capital, see positive turn of events in the oil sector but they fear that the sustained insecurity across the country may push back performance in the real sector, especially agric sector which drove the growths recorded in the last two quarters.
They stated: ‘‘Despite a weak Q1’21, we maintain our 2.0% growth forecast for 2021, as we expect a low base effect to provide a lift to growth in the Q2’21 and Q3’21.
‘‘The pick-up in Nigeria’s real GDP growth in Q1’21 was entirely due to a slowdown in the rate of the oil & gas sector’s decline. The sector declined by 2.2% YoY in Q1’21, which was a significant improvement on a 20% YoY decline in Q4’20.
‘‘We expect the oil & gas sector to grow in the remainder of 2021, off the low base effect created by the OPEC+ initiative to cut global crude supply in April 2020. Our Middle East and Africa oil & gas analyst, Nikolas Stefanou, forecasts oil production (including crude and condensates) of 1.80-1.85mbd in 2021, up from 1.78mbd in 2020. This supports a pick-up in GDP growth in 2021.
‘‘The slowdown in Nigeria’s non-oil economy’s YoY growth to 0.8% in Q1’21, from 1.7% in the preceding quarter, suggests a fragile recovery. This is worrisome as the non-oil sector accounts for over 90% of the economy, which implies its performance has meaningful implications for GDP growth.
‘‘The non-oil economy’s slowdown in Q1’21 was in large part due to a sharp 22% YoY decline in the transport sector. This followed a slowdown in transport’s rate of decline to 6.0% YoY in Q4’20, as against 40%+ YoY declines during the height of the COVID-19 crisis in Q2’20 and Q3’20. ‘‘We believe the reversion to a deeper decline in Q1’21 is partly due to a seasonality effect – travel typically slows after the festive season (Q4) – and rising incidents of insecurity on the country’s main road networks.
‘‘First, on the seasonality front, transport’s deeper YoY decline in Q1’21 (-22%), as against Q4’20 (-6%), may reflect a more normalised recovery (from -40%+ in Q2’20 and Q3’20) than that of the latter.
‘‘Second, we think this was compounded by an increase in incidents of insecurity, including kidnappings, on Nigeria’s roads. This has compelled people to limit road trips, seek alternative modes of travel, and only use the roads for essential domestic travel.
‘‘We are concerned that insecurity may undermine the transport sector’s recovery
‘‘The non-oil economy’s recovery is being held back by the wholesale & retail sector – Nigeria’s second-biggest economic sector – which declined by 2.4% YoY in Q1’21. This implies the sector has been in decline for eight consecutive quarters. The sector is our proxy for the consumer, and its performance tells us the consumer has been in recession for two years and has yet to emerge from its slump.
‘‘A low base effect implies that we are likely to see growth from wholesale and retail trade in Q2’21 and Q3’21.’’
Subsequent GDP improvement, but – Meristem Securities
Analysts at Meristem Securities Limited, a Lagos based investment house, see a positive outcome at the end of the year though they pointed at some downsides of the present economic realities that may underway the growth prospects.
They stated: ‘‘With the improvement in vaccinations and generally easier global restrictions, the outlook for the international crude oil market is largely stable.
However, pockets of uncertainties persist. Of particular interest is the increasing infection rate of a new variant of the virus in India, with the attendant spike in death tolls. With India being the primary destination for Nigeria’s crude oil (accounting for 17%), export volumes might become further constrained.
That notwithstanding, we expect a reversal (positive) of crude oil sector YoY growth in Q2:2021 due to the impact of a low base in Q2:2020. The outlook for the rest of the year will however depend on the rate at which Nigeria’s OPEC supply quota is increased.
‘‘The growth in the manufacturing and agricultural sectors during the quarter is attributable to eased lockdown restrictions and sustained real sector intervention by the CBN through improved access to low cost credit and loan forbearance by the banking sector. Although access to FX and heightened insecurity continue to challenge the real sector, the outlook for both sectors is positive.
‘‘With our expectation of recovery in the oil sector on the back of improving global demand, increasing prices, and production cut easing, as well as growth expectations for the agricultural and manufacturing sectors of the economy, we maintain our expectation of an advancement in the broad economic activities in 2021 full year.’’
Low base effect to sustain GDP growth – CardinalStone Finance
For the analysts at the CardinalStone Partners Limited, another invest house in Lagos, the positive DGP numbers would be helped up, at least by a low base effect.
They stated: ‘‘We retain a GDP growth projection of 1.7% for 2021, aided by expected robust outturns in Q2’21 and Q3’21 due to the low base effect from the coronavirus affected quarters of 2020.
‘‘In addition, the conclusion of repairs and maintenance activities across key oil terminals is likely to support the “black gold’ sector in the coming quarters. More robust growth recovery is also expected to embolden the monetary authorities to fast-track the normalization of rates in the latter parts of the year.’’
Why we are more bullish on GDP expectations – Afrinvest
Analysts at Afrinvest West Africa, appear to be very bullish in their GDP forecast for the year, projecting as high as 2.5%.
They stated: ‘‘Despite the subpar growth recorded in Q1:2021, we maintain our full-year growth projection of 2.5% for Nigeria in 2021. Barring any major shock such as resurgence in COVID-19 pandemic cases, crash in crude oil prices, and lengthy nationwide industrial strike action, we expect GDP growth to exceed 3.6% in Q2:2021 due to low base effect, before averaging 2.8% in the remaining two quarters.
‘‘We expect the oil sector to return to growth in Q2:2021, due to stable oil prices (at above $60/bbl.) and the gradual scale back of the output cut by the OPEC+ due to improvement in global oil demand.
‘‘For the non-oil sector, although we expect an overall improvement in Q2:2021 growth, we believe performance will remain divergent across activity sectors. Notably, we expect the Agriculture sub-activity sector to report modest improvement in growth (2.8%) partly due to the low base year effect. We expect the Finance & Insurance sub-sector activity to return to growth (1.5%) in Q2:2021 due to the gradual improvement in the interest rate environment since April, which we believe holds positive for banks’ trading income.
‘‘For the Services sub-sector activity, we expect the overall growth rate to print below double-digit in Q2:2021, due largely to even recovery across activity sectors.
‘‘However, we expect a high base year effect to propel Trade sub-activity sector to a positive growth region estimated at 1.7% in Q2:2021.’’