- Nigerian Economy to Contract in the Second Quarter of 2020
Recent data from both the Central Bank of Nigeria and the National Bureau of Statistics (NBS) pointed to a declining economy despite measures to curtail the negative impact of COVID-19 on Nigeria’s economy.
The Purchasing Managers’ Index released by the nation’s central bank showed the manufacturing sector contracted for the first time in over 36 months in May and highlighted the reason the apex bank lowered borrowing cost by 100 basis points from 13.5 percent to 12.5 percent in the month of May.
Nigeria, Africa’s largest economy, is struggling with low economic activities and weak fiscal buffer to stimulate growth from within, according to the Temitayo Sikiru, a business analyst at Investors King.
“We expect the PMI reading will continue to pick up over the coming months as economic activities continue to rise, however, it will mostly remain below the 50 mark, which signals a contraction,” said Gbolahan Taiwo, an economist with Stanbic.
Stanbic had predicted that the Nigerian economy will contract by 3.3 percent in 2020 because of the negative impact of low oil prices and COVID-19 on the economy. That was after the International Monetary Fund projected that the nation’s economic output will decline by 3.4 percent this year.
While Godwin Emefiele, central bank’s governor, had argued that the contraction could be less than the 3.4 percent projected by the IMF, the minister of finance, budget and national planning, warned that the economy could contract as much as 8.9 percent this year without effective management policies.
“The May PMI continues to suggest a deep contraction in growth. Even though easing lockdowns have slowed the rate of decline, the economy remains firmly in contractionary territory for now. With business confidence still weak, this is likely to persist –resulting in an overall contraction for the year. This is at odds with the CBNs expectation. Although they have announced a number of stimulus measures, exchange rate restrictions continue to weigh on growth. They also continue to stoke inflation,” stated Boingotlo Gasealahwe, an Africa economist.
