A few days ago, the National Bureau of Statistics (NBS) released the GDP numbers for Q4-18. Real GDP accelerated by 2.38% y/y in Q4-18, faster than1.81% y/y and 2.11% y/y growth recorded in Q3-18 and Q4-17 respectively.
The GDP numbers outperformed consensus estimates of 2.10% and delivered the highest quarterly growth since Q3-15. Also, the report indicated that output growth in the Nigerian economy settled at 1.93% in 2018 as a whole, beating our estimate of 1.7%. Notably, the acceleration was driven by the continued growth in the Agriculture, Manufacturing, Trade and Services sectors among others amid mild improvement in the oil sector GDP.
Oil-GDP: Dancing to the melody of oil prices and production
Although growth in Oil GDP improved 1.29% points between Q3-18 and Q4-18, the growth rate of output in the sector remained in the negative region settling at -1.62% in Q4-18 compared to -3.95% and -2.91% in Q2-18 and Q3-18 respectively amid oil production and price instability. The NBS reported that average daily oil production dipped to 1.91mbpd, a fairly lower output when compared with 1.94mbpd and 1.95mbpd produced in Q3-18 and Q4-17 respectively. Meanwhile, Brent prices averaged $68.6/b in Q4-18 vs $75.8/b in Q3-18. For the whole of 2018, average oil production edged higher to 1.92mbpd vs the 1.89mbpd and 1.80mbpd in 2016 respectively. The contribution of Oil GDP to aggregate GDP declined to 7.1% from 9.4% in Q3-18. Also, for 2018, the contribution of Oil GDP to aggregate GDP inched lower to 8.60% from 8.67% in 2017.
Non-oil GDP: Remain positive amid the rebound in the Services sector
GDP growth in the non-oil sector of the economy continued to trend northwards, recording 2.70% growth in the fourth quarter of 2018, relative to 2.32% recorded in the third quarter of 2018 and 1.45% recorded in the fourth quarter of 2017. The acceleration in the sector was buoyed by growth across major non-oil subsectors, led by the Services sector which rose 2.90% (from 2.64% in Q3-18), the Agriculture sector which expanded 2.46% (vs 1.91%) and the recovery in Industries sector, +0.95% (from -0.11% in Q3-18). Albeit, this also bolstered the contribution of the Non-oil sector to aggregate real GDP to 92.4% in Q4-18 from 90.6% in Q3-18 and 92.6% in Q4-17 respectively.
Agric. sector GDP grows 2.46% y/y, on the uptick in Crop Production
The Agriculture sector GDP grew 2.46% in Q4-18, faster recovery from the 1.91% recorded in Q3-18 but much lower than the 4.23% acceleration recorded in Q4-17. A deeper dive into the source of the growth showed that Crop Production, which contributed 90.1% to aggregate Agric GDP in Q3-18, rebounded 2.5% in Q4-18 (from 1.9% in Q3-18). This can be attributed to the harvest season that trailed the fourth quarter of the year. However, the tepidness of the recovery is underscored in the slowdown of activities in Livestock and Forestry sub-sectors, which recorded 2.3% (from 2.6% in Q3-18) and 3.7% (from 1.7% in Q3-18) respectively as the impact of the farmers and herders clash continued to linger. Notably, output in the Fishing sub-sector also recovered to 2.0% from 0.8% in Q3-18. Expectedly, on an aggregate level, for the whole of 2018, growth in Agriculture GDP came in at 2.12%, much slower than 3.45% recorded in 2017, reflecting the slowdowns seen in Crop Production and Livestock sub-sectors as the ripple effect of the farmer herders crisis shook the sub-sectors.
Manufacturing sector growth accelerates to 2.4%
As indicated by the survey indicators, the PMI and Business Expectations Survey, the Manufacturing GDP grew 2.35% in Q4-18, higher when compared to Q3-18’s 1.92% growth and Q4-17’s lukewarm growth of 0.14%. The acceleration in activities in the sector can be attributed to the rebound seen in Oil refining, which recorded the largest growth within the sub-sector of +33.6%, a retracement from the -17.4% decline seen in Q3-18. Although we saw slower growth in the Cement (+1.0% vs +8.1% in Q3-18) and Food, Beverage & Tobacco (+2.2% vs +2.9% in Q3-18), the stronger upticks recorded in the 8 of 13 subsectors of the Manufacturing GDP weighed positively on aggregate growth in the sector. The Manufacturing sector as a whole contributed 8.86% to overall real GDP, 2bps higher than that contributed to Q3-18 and flattish when compared to Q4-17.
Outlook:
Slow recovery to continue with FY-19 GDP expected at 2.1% In line with our expectation, the Nigerian economy remained on the path of recovery, albeit, sluggish, from +0.8% in 2017 to +1.9% in 2018. Yet, looking ahead into 2019, the pace of output growth is unlikely to rise astronomically given election uncertainties which may slow-down investments, budget passage and implementation and other economic activities, especially in H1-19. For the Oil sector, while the balance of supply and demand dynamics may keep prices slightly above the budget benchmark of $60/b, the output cap by OPEC+ pegged at 1.76mbpd could mount further pressure on the export capacity of the country, even though the recent Egina discovery may buoy local production toward the planned 2.3mbpd for 2019.
In the absence of further escalation of the crisis in the Middle Belt region, we expect the recovery in the Agric. sector to be sustained, majorly supported by faster growth in crop production, while growth in the services sector should be sustained amid improving spending in the aggregate economy. Accordingly, we maintain our 2019 GDP growth forecast at 2.1%y/y. We insist that for the Nigerian economy to deliver an above 2.1% output growth, there is the need to, implement pro-market policies, accelerate infrastructure development, quell terrorism and address system inefficiencies.
United Capital Research
