The NBS recently published the second quarter 2020 GDP numbers which showed that the economy contracted by -6.10% year-on-year (compared to a 1.87% growth recorded in the previous quarter and 2.12% growth in Q2-2019) owing to a non-oil GDP surprise decline of -6.05%.
The GDP breakdown shows that the oil industry declined significantly by 6.63% in Q2 2020 (compared to a growth of 7.17% Q2-2019). Q2-2020 crude oil output was projected to be, 1.81mbpd, 10.4% lower when compared to Q2-2019.
The oil sector contributed 8.93% of total GDP (compared to a growth of 8.98% in Q2-2019). In comparison, non-oil GDP showed a 6.05% decline (Vs. 1.64% growth in Q2-2019) in Q2-2020, the first decrease in real non-oil GDP since Q3-2017. The non-oil sector contributed 91.07% to total GDP (91.02% and 90.5% respectively in Q2-2019 and Q1-2020).
A further breakdown of three of the GDP’s key components: The agricultural sector rose by 1.58% in the review period (compared to a growth of 2.20% in Q1-2020); manufacturing contracted up by 12.05% (compared to a growth of 2.26% in Q1-2020); while the services sector decreased by 6.65% (compared to a growth of 1.57% in Q1-2020).
GDP Growth Rate
The quarter’s crude oil production (1.81mbpd) was the lowest since Q1-2017 (1.7mbpd). During the quarter, petroleum output was 12.6% and 10.4% lower (1.81mbpd) than in Q1-2020 (2.07mbpd) and Q2-2019 (2.02mbpd), respectively.
Nigeria’s Oil Production (mbpd)
Performance in the non-oil sector was significantly underwhelming contracting by -6.05% in the reference period compared to 1.55% growth in Q1-2020 and 1.64% growth in Q2-2019.
However, telecoms, financial institutions, and agriculture provided buffers as they expanded by 18.10%, 28.41% & 1.58%, respectively while Manufacturing (-8.78%) and trade (-16.59%) underperformed. Non-oil sector operations were dampened by Covid-19 induced lockdowns which essentially crippled economic activity for about half of the quarter.
Oil & Non-oil GDP Growth Rate
Social distancing and lockdown measures in sectors requiring human contact limited growth in the services sector. Sub-sectors such as transportation and storage, real estate, professional services, accommodation as well as arts and entertainment declined by -49.23%, -21.99%, -15.41%, -40.19% & -8.93%, respectively, year-on-year during the quarter.
The agricultural sector recorded a slower growth of 1.58% in the review quarter from 2.20% in Q1-2020. Crop production declined to 1.44% (compared to a growth of 1.94% in Q2-2019). The fishery sub-sector grew by 5.68% for the reference quarter, while crop production which accounts for 89% of the Agric-economy grew by 1.44% year-on-year.
In review, livestock grew by 2.26% and forestry grew 1.08% in the Q2-2020. We believe the slower growth of the sector can be attributed to lock-down measures, lean planting season and rising insecurity in northern parts of the country.
The Manufacturing sector posted a decline of -8.78% year-on-year. The low purchasing power of consumers as inflation bites hard amidst border closure and foreign exchange scarcity as well as reduced international trade as a result of supply chain disruption caused by the coronavirus, strained the sector. Nevertheless, sub-sectors like motor vehicles & assembly, chemical & pharmaceutical grew by 6.95% & 3.79%, respectively.
Agriculture, Manufacturing & Services GDP Growth Rate
Contribution to GDP
The economy to slump to recession in Q3, but the worst is behind
Although the gradual normalization of the economy post-lockdown is expected to support economic activities, we still expect the economy to contract, slumping into the second recession in four years.
We expect a steeper contraction in the oil sector due to increased compliance with OPEC+ production cut.
Although OPEC+ nations have agreed to scale back production cuts from August, Nigeria is expected to compensate for lack of full compliance with the previous limit. Thus, oil production (excluding condensates) has been pegged at 1.4mb/d between August and September.
For the non-oil sector, we expect growth to also remain negative, albeit at a slower pace, as lockdown measures continue to ease. We expect the snags of limited FX supply and devaluation of the Naira to continue to negatively impact activities in the manufacturing sector.
Although the Information and Communication sector, as well as the financial institutions, are expected to support output in the services sector, the bearish performance of the domestic trade and real estate subcomponents– the combination of which account for 20% of the GDP basket – are expected to drag the sector’s performance.
For clarity, with consumption being the key driver for the domestic trade, the tight consumer wallets due to negative real wage growth and increased unemployment (Q2-19: 27.1%) is expected to dampen consumption significantly.
Finally, we expect the agriculture sector to remain resilient, supported by the seasonality effect of the harvesting in the third quarter. However, due to the high base in the corresponding period last year, we expect only modest growth.