Nigeria’s Q2 growth figures not broad-based, seen pointing to pedestrian recovery

A review of Nigeria’s growth figures released Tuesday, according to analysts, has shown that the growth was not broad-based as only a handful of sectors, the oil and gas and financial services sectors, pulled the economy out of recession.

Finance is the outlier from the services sector, growing 11.8 percent year-on-year in 2Q17 against a decline of 13.2 percent a year earlier. This made it the second-biggest contributor to GDP growth in 2Q17, attributable partly to banks investing in high-yielding government securities, which is profitable on a risk-adjusted basis. The finance sector’s performance was not strong enough to counter the decline in trade and real estate.

Razia Khan, head of global research at Standard Chartered, London, in a tweet Tuesday said the released figures disappointed a consensus of expectations, adding that finance and insurance seem the strong point of the Q2 GDP growth.

She then queried the growth asking if it points to a more broad-based growth ahead or the risk lying in another financial sector – real sector disconnect.

“Does it point to a more broad-based growth ahead?” She asked

The contention of most analysts is that outside agriculture, the non-oil sector remains weak with real estate and trade, which account for 25 percent of GDP, still in recession.

Analysts at Renaissance Capital specifically see the Q2 growth figures pointing to a pedestrian recovery as persistent sluggish demand leads them to believe so.

Equally, analysts at Financial Derivative Company said Nigeria is on U-shaped recovery as the country’s misery index increased to 50.2 percent in the review period as well as aggregate consumption declining.

The misery index, as an economic indicator, helps determine how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate.

A higher ranking on this index indicates a worsening economic climate in any country. Nigeria’s ranking on this index has worsened from 47.7 percent in August 2016 to 50.2 percent as at end-June

According to the data released by Nigeria’s National Bureau of Statistics, trade (a good gauge for consumer consumption) contracted by 1.6 percent year-on-year 2Q17 as against zero growth in 2Q16.

Equally, the real estate sector declined by a slower rate of 3.5 percent year-on-year as against 5.3 percent over the same period.

On the upside, public administration – the government – grew for the first time since 4Q14, when the oil price collapsed.

Owing to a more favourable outlook for oil output, RenCap analysts say they are revising their 2017 growth forecast up, to 0.7 percent as against 0.5 percent previously, stressing that sluggish demand leads them to believe the recovery will be pedestrian.

Nigeria’s oil and gas sector grew for the first time, after contracting for six quarters. The extractive sector grew 1.6 percent from -11.6 percent a year earlier, on the back of an increase in oil production to an average of 1.9 million barrels a day.

“We think the repair of the Trans-Forcados pipeline, which led to output of c. 200k b/d coming back on stream in June, and the tripling of the budget for the amnesty programme for Niger Delta militants, partly explain the improvement in oil output,” they noted, adding that it is too early to say whether the oil sector’s return to growth is the start of a trend as the last time the oil sector grew for longer than a quarter was in 2011.

The non-oil sector grew by a modest 1.1 percent year-on-year in 2Q17, compared with -0.4 percent a year earlier. The sector continues to be weighed down by the underperforming services sector, as agriculture remains the staple contributor to GDP growth, due to its size (23% of GDP) and consistent 3-4 percent growth.

Manufacturing also had a moderate recovery in 2017, following almost two years of decline, led by food and beverages.

Specifically, the sub-sector grew by 2.7 percent as against -5.5% a year earlier.

“We believe the improvement in FX liquidity has contributed to the pick-up in activity in the manufacturing sector,” the RenCap analysts pointed out, adding that textiles have also shown modest growth year-to-date after declining for most of 2016. However, the cement sector continues to underperform, declined by 4.2 percent versus a contraction of 5.5 percent a year earlier.