In the just concluded week, Nigeria’s economy technically went into recession having printed two consecutive quarters of negative growth rates in line with our expectation.
Specifically, data from the National Bureau of Statistics (NBS) showed that the country’s real Gross Domestic Product contracted y-o-y by 3.62% to N17.82 trillion in Q3 2020, albeit better than the 6.10% contraction printed in Q2 2020 – economic activities relatively improved in the quarter under review given the further ease in lockdown as number of COVID-19 discharged cases increased.
Financial Services, Information & Communications and Agricultural sectors, which jointly accounted for 46.91% of total GDP, all grew y-o-y by 3.21%, 14.56% and 1.39% respectively in Q3 2020.
Information & Communications and Financial Services sectors had continued to benefit from “new normal” as most companies and individuals were heavily reliant on technology. The non-oil sector shrank y-o-y by 2.51% but grew by 12.36% q-o-q to N16.27 trillion.
The strong quarterly growth in the non-oil sector was largely due to improvements witnessed in the Agricultural, Trade and Manufacturing sectors as they registered quarterly growth rates of +39.95% in Q3 (from +6.57% in Q2), +9.01% in Q3 (from -15.68% in Q2 ), and +9.01% in Q3 (from -15.68% in Q2).
The oil & gas sector fell y-o-y by 13.89%, from a 6.63% contraction printed in Q2 2020; albeit, it grew q-o-q by 9.64% amid a significant rise in the price of Bonny light in Q3 2020. Quarterly average crude oil price rose to USD43.28 per barrel in Q3 (from USD29.88 in Q2 2020); albeit crude oil output fell by 23.13% to 1.47mbpd.
In another development, the Monetary Policy Committee (MPC), after its 2-day meeting which ended on Tuesday, November 24, 2020, voted to retain the Monetary Policy Rate (MPR) at 11.50% and the asymmetric corridor at +100 and -700 basis points around MPR. Cash Reserve Ratio (CRR) and Liquidity Ratio were also left unchanged at 27.5% and 30% respectively.
Obviously, the Committee prioritised lifting Nigeria’s economy out of recession over stabilizing the rising prices of goods and services in order to allow the effect of its expansionary policy permeate the economy.
Notably, the MPC stated that the rising inflation rate could be attributed to supply-side disruptions arising from COVID-19 pandemic and other legacy issues such as the security challenges in some parts of the country, as well as the recent hike in the pump price of PMS and electricity tariff.
Hence, it called on the FG to address the structural issues engendering the general rise in prices. Meanwhile, the rising prices of different benchmarks of crude oil increased further, especially the West Texas Intermediate (WTI) crude price which rose w-o-w by 9.09% to USD45.71 a barrel amid a 3.05% w-o-w jump in US crude oil input to refineries to 14.26 mb/d as at November 20, 2020 (albeit, It moderated y-o-y by 12.68% from 16.33 mb/d as at November 22, 2019).
Also, Brent price rose by 8.12% to USD47.79 a barrel as at Thursday, November 26, 2020, even as Bonny Light increased by 8.76% to USD47.69 a barrel. We saw U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decline by 0.15% w-o-w to 488.72 million barrels as at November 20, 2020 (however, inventories have risen by 8.14% y-o-y from 451.95 million barrels as at November 20, 2019).
We expect Nigeria’s economy to have a “V-shape” recovery from this recession amid the development of a vaccine for COVID-19 virus, stable crude oil prices and the numerous stimulus packages from both the fiscal and the monetary authorities.
However, we note that the recovery may be slowed by the aftermath of the EndSARS protest and rising inflation rate despite the decision of the MPC to retain all key policy parameters.