The Nigerian economy slid into its second recession in five years, following the 3.62% y/y contraction recorded in Q3’20 (Q3’19: +2.28% y/y). The economy had earlier recorded a 6.10% y/y slump in Q2’20, as the lockdown hampered economic activities for five weeks.
Despite the gradual easing of the lockdown, the economy continued to experience a slowdown due to the disruptive effects of COVID-19 on consumption, investment and trade.
Compensatory cuts restrain oil sector growth
To begin with, the oil sector slipped by 13.89% y/y in Q3’20 compared to a 6.49% y/y growth in Q3’19 and a 6.63% y/y decline in Q2’20. Held back by
improved compliance with OPEC+ production cuts, the country had to compensate for earlier overproduction by producing lower than necessary. This dragged crude output to 1.67mb/d in Q3’20 (Q2’20: 1.81mb/d). As a result, the sector’s contribution to growth reduced to 8.73% in Q3’20 from 9.77% and 8.93% in Q3’19 and Q2’20, respectively.
Due to the impact of structural reforms on the business environment, the non–oil sector slipped by 2.51% y/y in Q3’20 (Q3’19: +1.85% y/y). Both the industrial (Q3’20: -6.12% y/y) and the services (Q3’20: -5.49% y/y) sectors relapsed given the impact of the pandemic on supply chains, foreign exchange market and business operations.
However, the agricultural sector remained resilient, with output growth of 1.39% y/y (Q3’19: 1.87% y/y, Q2’20: 1.58% y/y) due to trade policy and public investment drive.
Trade continued to suffer from social distancing restrictions and the continued closure of land borders. The pandemic compounded woes in the sector as supply chain disruptions dragged the sector by 12.12% y/y in Q3’20 (Q2’20: – 16.59% y/y). Elsewhere, the transport sector slumped by 42.98% y/y (Q2’20:-49.23% y/y) despite the lifting of inter-state movement restrictions.
The real estate sector slumped by 13.40% y/y (Q2’20: -21.99% y/y) due to continued pressure on consumer wallets that limited the purchase of big-ticket items.
Meanwhile, the ICT sector continued to outperform other segments, recording a double-digit growth of 14.56% y/y (Q2’20: 15.09% y/y), buoyed by improved adoption of digital services and change in business continuity plans. However, growth in the Financial Services sector slowed to 3.21% y/y in Q3’20 (Q2’20: 18.49% y/y) due to the high base from Q3’19 and cautious lending drive given the spate of loan restructurings.
Headwinds drag the tangible sector
The tangible sector slumped by 1.91% y/y in Q3’20 (Q2’20: -5.40% y/y), pummeled by the external shocks and reforms in the downstream sector. Construction and agriculture sectors grew by 2.84% y/y and 1.39% y/y respectively while the manufacturing and mining sectors fell by 1.51% y/y and 13.22% y/y respectively.
The border closure policy has supported growth in agriculture, which has seen improved funding and interventions. This improved the sector’s contribution to growth to 30.77% in Q3’20 from 24.65% in Q2’20 and 29.25% in Q3’19.
The sector was however marred by missed planting seasons during the lockdown and adverse weather conditions. Due to the impact of the pandemic and flooding on output, the country has been identified as a potential famine hotspot by the Food and Agricultural Organization (FAO).
The mining sector was held back by the slump in external demand and the presence of oil production quotas. The sector slumped by 13.22% y/y, contributing less to GDP in Q3’20 (8.91%) than it did in Q3’19 (9.90%).
Elsewhere, the commencement of suspended projects and budget execution efforts gave the construction sector a quick recovery. Growing by 2.84% y/y and 11.54% q/q, the construction sector witnessed a boost from the reopening of the economy. Thus, the sector contributed a bit more to GDP in Q3’20 (3.21%) than it did in Q3’19 (3.01%).
Finally, manufacturing output fell by 1.51% y/y in Q3’20 due to disruption in supply chains, weak demand and double-step devaluation of the Naira. The CBN’s Purchasing Managers Index surveys revealed that there was no expansion in production levels in Q2’20 and Q3’20. Our attribution analysis shows the sub-sectors that dragged the overall sector are the oil refining (- 68.29%), textile (-12.12% y/y) and non-metallic products (-12.23%).
However, the reopening of economies hastened recovery in the food (5.57% y/y) and cement (11.96% y/y) sub-sectors while the chemical & pharmaceutical products (6.60% y/y) sub-sector maintained its expansion path due to its role in fighting the pandemic. We note that despite the reopening of the economy, the manufacturing sector was faced with higher cost obligations, supply chain disruptions and weak consumer demand.
Of all 13 subsectors, 9 sectors recorded negative output growth, with the worst performance from the refining (-68.29%), electronics (-20.12%) and non–metallic (-12.23%) sub-sectors.
Performance of selected sectors
Output losses to extend recession into Q4’20
Although the rate of COVID-19 infections and deaths are not as high as in advanced economies, the butterfly effect of the pandemic on the economy is profound. The economy is on course to witness its deepest full-year contraction in at least a decade as the pandemic is a tripartite shock to demand, supply and the financial sector.
With the current pace of job losses and rising inflation, weak consumer demand has propelled re-packaging of products to reflect the downbeat state of consumer wallets.
We expect the economic downturn to trickle into Q4’20 due to the slowdown in economic activities brought about by the nationwide END SARS protests. Roadblocks, widespread vandalism and looting that characterized the protests resulted in higher logistics costs and output losses and increased insurance claims.
Alongside the scars from the pandemic, these factors are expected to drag the overall economy by 2.64% y/y in Q4’20, culminating in a -2.68% y/y growth outcome for FY’20.
