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COVID-19 Plunges Nigeria’s GDP by the Most, Contracts by 6.10% in Q2 2020

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Nigeria’s Economy Contracts by 6.10% in Q2 2020 as COVID-19 Bites

Nigeria’s economy contracted by the most on record in the second quarter as COVID-19 negative impacts plunged activities, according to the data released by the National Bureau of Statistics (NBS) on Monday.

Africa’s largest economy contracted by 6.10 percent year-on-year in real terms in the quarter under review. Bringing an end to a 3-year of low but steady economic recovery started after the 2016 economic recession.

NBS attributed the decline to drop in global and local economic activities due to the global pandemic that disrupted both logistics and global economic activities during the quarter.

Nigeria’s revenue generation plunged to a record-low during the period as low oil price and weak demand dragged on the nation’s foreign reserves and ability to services its petrol-dollar economy.

The domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, bans on domestic and international travel, closure of schools and markets etc., affecting both local and international trade. The efforts, led by both the Federal and State governments, evolved over the course of the quarter and
persisted throughout,” the NBS noted.

However, when compared with the same period of 2019, when the economy grew by 2.12 percent, the economy declined by 8.22 percent and recorded a 7.97 percent decline when compared to 1.87 percent posted in the first quarter of 2020.

Accordingly, Nigeria’s real GDP contracted by 2.18 percent year-on-year in the first half of the year, down from 2.11 percent growth recorded in the same period of 2019.

On a quarterly basis, the real economy decreased by 5.04 percent. The report noted that only 13 sectors recorded positive real growth in the quarter, down from 30 posted in the first quarter.

Similarly, aggregate GDP declined by 2.8 percent from N35,001,877.95 million achieved in the corresponding quarter of 2019 to N34,023,197.60 million in nominal terms.

In general, the nominal growth rate contracted by 16.81 percent and 14.81 percent when compared with the second quarter of 2019 and the first quarter of 2020.

Oil Sector

During the period under review, Nigeria’s daily crude oil production stood at 1.81 million barrels per day (mbpd), representing 0.21 mbpd decline from 2.02 mbpd posted in the same period of 2019 and 0.26 percent lower than the 2.07 mbpd pumped in the first quarter of 2020.

Despite the reasonable moderate production level, growth in the oil sector contracted by 6.63 percent year-on-year in the second quarter, a decrease of 13.80 percent when compared to the corresponding period of 2019. Growth in the sector declined by 11.69 percent from 5.06 percent growth achieved in the first quarter.

On a quarterly basis, the sector contracted by 10.82 percent. Largely due to weak global demand for the commodity, especially the expensive Nigerian oil when compared to Saudi Arabia and Iraq offering huge discounts to sustain sales.

Still, the sector contributed 8.93 percent to the total real economy in the second quarter, lower than the corresponding period of 2019 and the preceding quarter, where it accounted for 8.98 percent and 9.50 percent, respectively.

Non-oil Sector

The real GDP of the non-oil sector contracted by 6.05 percent in the reference quarter. The first decline since the third quarter of 2017 and represents a 7.70 percent decline from the number posted in Q2 2019 and 7.60 percent lower than the first quarter of 2020 result.

Output in the sector was driven largely by Financial and Insurance, Information and Communication, Agriculture and Public Administration. NBS said these four non-oil sectors moderated the economy-wide decline.

According to the bureau, the Transport and Storage, Accommodation and Food Services, Construction, Education, Real estate and Trade experienced the largest decline in the quarter under review.

The non-oil sector accounted for 91.07 percent of Nigeria’s aggregate GDP in real terms. Again, higher than the 90.50 percent recorded in the first quarter and 91.02 percent posted in the same period of 2020.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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CBN’s Monetary Policy Raises Concerns Over Nigeria’s Q2 Growth

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Central Bank of Nigeria (CBN)

Nigeria’s economic outlook for the second quarter of 2024 is clouded with uncertainty as economists and analysts express concerns over the impact of the Central Bank of Nigeria’s (CBN) aggressive monetary policy.

Following a series of interest rate hikes aimed at curbing inflation, there are growing fears that these measures could stifle economic growth in Africa’s most populous nation.

The National Bureau of Statistics (NBS) reported that Nigeria’s Gross Domestic Product (GDP) grew by 2.98 percent in real terms in the first quarter of 2024, up from 2.3 percent in the same period of 2023.

However, this growth represents a slowdown from the 3.46 percent recorded in the fourth quarter of 2023.

The outlook for the second quarter is less optimistic with predictions of slower growth due to the CBN’s tightening measures.

“The year-on-year growth makes sense given that in the first quarter of last year, we were affected by the uncertainty about currency replacement, fuel queues, and elections,” said Ayo Teriba, CEO of Economist Associates.

“However, the tightening measures by the CBN that started in February are likely to take their toll in Q2 and subsequent quarters.”

Last week, the CBN raised its monetary policy rate by 150 basis points to 26.25 percent, marking the third consecutive hike.

This brings the total increase since February to 750 basis points, a move designed to combat inflation and defend the naira.

Analysts at FBN Quest warned that these rate hikes could slow economic growth and reduce consumer spending.

“Ultimately, the impact on the general economy could be a potential slowdown in economic growth, with consumer spending suppressed, and a decrease in business investments,” FBN Quest stated in a recent note.

The NBS report also highlighted that the services sector was the primary driver of GDP growth in the first quarter, recording a 4.32 percent increase and contributing 58.04 percent to the aggregate GDP.

The agriculture sector grew by 0.18 percent, a modest improvement from the -0.90 percent recorded in Q1 2023.

Meanwhile, the industry sector grew by 2.19 percent, up from 0.31 percent in the first quarter of 2023.

Ikemesit Effiong, head of research and partner at SBM Intelligence, noted that services have significant exposure to monetary policy effects.

“Since growth was largely powered by services, I would expect some slow growth in Q2. But I don’t think the slowdown might be actually significant. It might just be around 2.4-2.5 percent.”

Analysts at Comercio Partners observed that the GDP growth rate has been slower yet steady, hovering around three percent from 2021 to 2023.

However, they warned that the CBN’s rate hikes could have a deleterious effect on growth.

“The central bank had hiked the MPR by a hefty 600 basis points to 24.75 percent to curb inflation in March. Despite these efforts, inflation has been stubbornly high, hitting a record 33.69 percent in April, eroding consumer purchasing power. The increased interest rate has also raised the cost of borrowing for real sectors, stifling economic growth,” Comercio Partners noted.

President Bola Tinubu’s recent economic reforms, including the removal of a costly petrol subsidy and the lifting of currency controls, have exacerbated inflationary pressures, further complicating the economic landscape.

The naira has suffered a near 30 percent devaluation this year, following a 40 percent devaluation last June. Rising inflation has weakened consumer purchasing power, while businesses grapple with higher operating costs.

Muda Yusuf, CEO of the Centre for Promotion of Private Enterprises, highlighted the importance of oil output in sustaining growth.

“We might see positive growth in Q2 if the improvement in oil production is sustained and the CBN is able to reduce volatility in the forex market because it is affecting confidence and fueling speculation,” he said.

Joseph Nnanna, Chief Economist at the Development Bank of Nigeria, cautioned that the latest rate hike could impede real sector growth and hinder GDP growth this year.

“The 150bps rate hike is pernicious to the real economy as households and MSMEs will feel the impact immediately,” Nnanna said.

“However, the rate hike has a signalling effect on the fiscal authorities. They need to improve fiscal discipline and prioritize spending to improve growth.”

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Bank of Ghana Set to Maintain Interest Rate at 29% Amidst Inflation Concerns

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Ghana one cedi - Investors King

The Bank of Ghana is anticipated to keep its benchmark interest rate steady at 29% to curb soaring inflation and stabilize the nation’s currency, the cedi.

This decision comes as Governor Ernest Addison prepares to announce the monetary policy committee’s (MPC) verdict later today in Accra.

According to a survey conducted by Bloomberg, most economists expect the MPC to maintain the current rate in an effort to control inflation, which has averaged around 25%, and to support the struggling cedi.

The Ghanaian currency has depreciated by approximately 10% against the US dollar since the MPC’s last decision to keep borrowing costs unchanged in March, marking it as the worst-performing currency globally over this period.

“I expect the Bank of Ghana to keep the policy rate on hold in May in order to bolster the cedi and prevent higher import prices from keeping inflation at the currently elevated level,” stated Mark Bohlund, a senior credit research analyst at REDD Intelligence.

The cedi’s decline has been significantly impacted by a sharp drop in cocoa earnings, with revenue from cocoa exports falling by 49% to $599 million in the first four months of this year.

Ghana, the world’s second-largest producer of cocoa, has faced adverse weather conditions, disease, and a fertilizer shortage, all contributing to decreased output.

In an effort to manage its economic challenges, Ghana is reorganizing most of its $42.2 billion debt as part of conditions for a $3 billion program from the International Monetary Fund (IMF).

Last Thursday, the nation received a draft agreement to restructure debts with its official creditors, a necessary step to secure a $360 million disbursement from the IMF expected by the end of June.

Economists like Bohlund and Courage Boti, of Accra-based GCB Capital Ltd., suggest that the MPC might be in a position to consider cutting rates at its July meeting.

They anticipate that the currency could start to recover with the forthcoming IMF disbursement, and the favorable base effects could lead to a sharp slowdown in inflation.

“The more appropriate time to look at a rate cut will probably be July, by which time the currency pressures would have eased and its full impact assessed,” said Boti.

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Agricultural Sector’s Contribution to GDP Decreases in Q1 2024

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Agriculture - Investors King

Nigeria’s agricultural sector declined in its contribution to the Gross Domestic Product (GDP), according to recent data released by the National Bureau of Statistics (NBS).

The sector, which encompasses crop production, livestock, forestry, and fishing, experienced a decrease in its nominal growth rate compared to the same period in 2023.

The data reveals that the agricultural sector grew by 0.77% year-on-year in nominal terms in Q1 2024, a decrease of 4.47% points from the corresponding quarter of the previous year.

This decline is significant, especially when compared to the growth rate of 14.94% recorded in the preceding quarter, showcasing a downturn of 14.17% points.

Crop production emerged as the primary driver of the sector, constituting 87.98% of the overall nominal value of the sector in Q1 2024.

However, despite its dominance, the sector’s contribution to nominal GDP stood at 17.22%, reflecting a decrease from the rates recorded in both the first quarter and fourth quarter of 2023, which were 19.63% and 24.65%, respectively.

In real terms, the agricultural sector experienced a modest growth rate of 0.18% year-on-year in Q1 2024, indicating an increase of 1.08% points from the same period in 2023.

Nevertheless, this growth rate represents a decline of 1.92% points from the preceding quarter, which recorded a growth rate of 2.10%. On a quarter-on-quarter basis, the sector’s growth rate stood at -32.25% in the first quarter of 2024.

Despite these challenges, the agricultural sector remains a vital component of Nigeria’s economy, contributing significantly to employment, food security, and overall economic development.

As the nation navigates through economic fluctuations, policymakers and stakeholders may need to explore strategies to revitalize and strengthen the agricultural sector to ensure its sustained growth and resilience in the face of future uncertainties.

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