Nigeria’s domestic economy shores up outlook for Q3

Nigeria’s recovery is firming up, according to recently released data by the National Bureau of Statistics (NBS). The performance of the economy has given reasons for analysts to foresee further improvement in the third quarter and in 2018.

“Growth should increase next year thanks to greater oil production and higher oil prices,” analysts at FocusEconomics, a Spain-based leading provider of economic analysis and forecast, noted.

However, they contend that continuing foreign exchange distortions, rampant corruption and domestic policy uncertainty mean the expansion will likely be meager, and too low to put a dent in the unemployment and poverty rates.

Panelists participating in the FocusEconomics Consensus Forecast indeed expect the economy to grow 1.2 percent in 2017 and 2.7 percent in 2018, down 0.1 percentage points from their August forecast

Nigeria’s growth in Q2 was underpinned by a stronger oil industry and another quarter of tepid expansion in the non-oil sector.

Oil production averaged 1.84 million barrels per day in Q2, up substantially from Q1. However, this positive trend could be reversed by the tensions, which continue to rumble in the oil-producing Niger Delta region.

Specifically, militants recently threatened to renew attacks on the oil infrastructure unless the government takes steps to improve the quality of life for locals.

Aside from uncertainties in the oil industry, there are encouraging economic signs so far in the third quarter, and the PMI reached a multi-year high in August thanks to a robust domestic market and strong growth in output and new orders.

Last month, the Central Bank unified some parallel exchange rates in a bid to simplify the FX system, although a significant gap between the official and interbank rates remains.

The country’s inflation figures are also encouraging to support the growth outlook as they are seen boosting consumption, a major component of GDP.

The August inflation figures as released by Nigeria’s statistical agency, the National Bureau of Statistics (NBS), indicate a seventh consecutive decline in the rate of headline inflation year-on-year since January 2017.

The deceleration in the pace of inflation, according to analysts is as a result of waning base effect of hike in petroleum products prices in 2016, which sporadically shot up consumer product prices across the country in the entire year.

According to data from the NBS, the percentage change in the average composite CPI for the twelve-month period ending in August 2017 over the average of the CPI for the previous twelve-month period was 17.33 percent, 0.14 percent point lower from 17.47 percent recorded in July 2017.