The prevalence of Covid-19 vaccines and the realization of the need to cohabit with the virus, has spurred a gradual de-emphasis of restrictive measures across most economies, except for nations like China that still maintain a zero-Covid approach.
However, in an unwelcoming fashion, the crisis in Eastern Europe has eclipsed the Covid-19 pandemic as the leading disruptor of the global economy this year, forcing economic organizations, like the Bretton Wood Institutions, to revisit and downgrade their growth expectations for several developed nations and the global economy at large. Hence, a year touted as a post-covid consolidation period has brought its unique headwinds, consequently reigniting recessionary fears and worsening inflation worries in major economies like the U.S. and the Eurozone. Essentially, the global economy is walking on eggshells once again.
Back at home, the shriveling impact of the prevailing geopolitical crisis has left the inflationary image battered, but the non-oil growth trajectory for the first quarter was relatively unfettered. However, oil sector growth remains subdued, as Nigeria’s abysmal output remains a challenge. Overall, the recent GDP report released by the NBS revealed a real GDP growth rate of 3.11% Y/Y in Q1 2022, on the back of sturdy growth in sectors like ICT, Financial Institutions, Trade, Agriculture, and Manufacturing.
Q1 2022 Growth Numbers – staying the course
The economy recorded a real growth rate of 3.11% y/y in Q1 2022, representing a decline of 0.88% when compared to the preceding quarter (3.98%), but reflecting an uptick of 2.60% relative to the growth rate recorded in Q1 2021 which stood at 0.51%. In nominal terms, aggregate GDP stood at N45.32 trillion in Q1 2022, up by 13.25% when compared to the amount recorded in the first quarter of 2021 which stood at N40.01 trillion. The year-on-year nominal growth rate for Q1 2022 stood above the levels as of Q1 2021 (12.25%) and the preceding quarter (13.11%).
Oil Sector – output shortfall bites harder
The oil sector fell deeper into the contractionary region, as it recorded a real growth rate of -26.04% y/y in the first quarter of 2022. The Q1 2022 negative growth rate seen in the oil sector represents a 23.83% decline when compared to the rate recorded in Q1 2021 (-2.21%) and reflects a 17.99% fall relative to the rate seen in the fourth quarter of 2021 (-8.06%). The oil sector marked its eighth consecutive period of contraction, despite the significant rally seen in the international oil market within the review period. Brent Crude, which serves as the benchmark crude for Nigeria’s Bonny Light, averaged $97.91/bl in the review period, representing an upsurge of 59.80% and 22.90% relative to the average pricing in Q4 2021 and Q1 2021 ($79.66/bl and $61.27/bl), respectively. The upsurge in oil prices was driven by the supply disruptions that ensued from the Russia-Ukraine conflict, which basically exacerbated the supply shortage that lingered into 2022. For the OPEC+, the group sustained its moderate approach to increasing output throughout the review quarter (400,000 bpd monthly increase), despite skyrocketing prices.
Notwithstanding the elevated price of crude oil in the review period, the oil sector managed to suffer a deeper contraction, due to Nigeria’s underperforming oil production. In Q1 2022, oil output stood at 1.49mbpd, reflecting a decline of 0.23mbpd when compared to the production level in Q1 2021 (1.72mbpd). The Q1 2021 oil production level was also lower than the 1.50mbpd output level recorded in Q4 2021. Even as OPEC+ sustained its efforts to gradually improve output, Nigeria consistently failed to meet the allotted production quota given structural issues pertaining to the debilitated oil infrastructure, investment paucity, and the frequent occurrences of oil pipeline vandalism and theft.
In terms of GDP contribution, the oil sector accounted for 6.63% of the GDP in the review quarter, lower than 9.25% recorded in Q1 2021, but higher than the 5.19% contribution in Q4 2021.
Non-Oil Sector – consolidating growth
The non-oil sector recorded a real growth rate of 6.08% y/y in the review period, up by 5.28% and 1.34% from 0.79% and 4.44% recorded in Q1 2021 and Q4 2021, respectively. The sector continues to consolidate its growth following the downdraw induced by the Covid-19 pandemic in 2020. The underlying sectors that supported the Q1 2022 non-oil growth include; Information and Communication, Financial and Insurance, Transportation and Storage, Trade, Agriculture, and Manufacturing.
The non-oil sector’s GDP contribution stood at 93.37% in the review period, higher than its contribution in Q1 2021 which stood at 90.75%, but below the 94.81% share recorded in the fourth quarter of 2021.
Sectoral Performance in Q1 2022 – broadly positive
Of the nineteen sectors under our review, sixteen recorded growth while three contracted. A further probe of the data revealed that most pandemic impacted sectors have largely rebounded, while the outperforming segments in the service sector stayed resilient. Sectors like trade and manufacturing have shrugged off the negative pandemic influence, while the likes of ICT, agriculture, and financial institutions sustained their impressive growth trend. Elsewhere, real estate and construction remain buoyed by improved infrastructure spending. However, energy-related sectors suffered some contraction in the review period, such as Mining and Quarrying, Transportation and Storage, as well as Electricity, Gas, Steam and Air Conditioning Supply.
Activity Sectors – sturdy Services performance\
Of the three major activity sectors, Services retained the largest quotient in terms of GDP contribution, at 56.17%. Hence, Agriculture and Industries contributed 22.36% and 21.47%, respectively, to the GDP in Q1 2022. Consequently, Services served as the launchpad for growth in the review period, as the sector grew by 7.45%. GDP growth was also supported by a 3.16% uptick in Agriculture, while Industries remained in the contractionary region at -6.81%.
The major drivers of the performance of Services are the outperformance of component sectors like Finance and Insurance and Information Communication.
Expectations – inflationary pressures could slow GDP growth
The non-oil sector has remained central to the post-Covid-19 growth narrative for Nigeria, drawing support from the sturdy performance of sectors like Information Communication and Finance and Insurance. With Covid-19 fears becoming more of an afterthought, a post-pandemic growth consolidation is underway, as the Q1 2022 growth numbers represent the sixth straight quarter of positive economic growth in Nigeria. Elsewhere, oil sector performance remains underwater, as the surge in crude prices have been shrugged off, while constricted output levels have helped dig the sector deeper into contraction. Hence, the advantage that typically accrues to oil-exporting nations during periods of elevated energy prices, could not be efficiently leveraged thanks to legacy issues that have subdued output levels.
Despite the sturdy growth seen in the non-oil space in the review period, the caveat posed by spiraling inflation, particularly in the wake of the Eastern European conflict, poses a threat to its performance. Particularly, unregulated refined petroleum products will adversely impact the cost margins of several services sectors like the ICT, hence, weakening growth in subsequent quarters. Also, there appears to be no major tailwind for the oil space, as sectoral ills pertaining to security concerns and debilitated infrastructure remain unaddressed.
Conclusively, we retain modest expectations for GDP growth this year, as the growing predominance of inflationary and geopolitical downside risks should keep growth between 2.50% and 3.00% in 2022.