NSR H1 2021 Excerpts - GDP - The exit from a recession
Nigeria Strategy Report – H1 2021 Excerpts
Domestic Economy and Markets
- In this report, we focus on development in the domestic environment, highlighting our views on the drivers for growth over 2021.
- Extending the pattern in H1 20, when output contracted by -2.1% YoY induced by the COVID-19 pandemic, the economic landscape deteriorated further in Q3 20 with GDP contracting by 3.62% YoY, taking Nigeria’s economy into a recession. Consequently, over the first nine months in 2020, Nigeria’s economic output shrank by 2.62% reflecting declines in both the oil and non-oil sectors. Specifically, lower crude oil production of 1.85mbpd (9M 19: 2.02 mbpd) drove the contraction in the oil sector (9M 20: -5.2% YoY), while moderations in the non-oil sector (9M 20: -2.3% YoY) reflects declines across the Manufacturing, Trade, Services and Construction sector. Over the last quarter of 2020, we project crude production would print at 1.7mbpd (Q4 19: 2mbpd), which translates to a 15% YoY contraction in oil GDP. For the non-oil territory, improvement in Services, Construction, and Agricultural sectors, as well as slower contraction in Trade and Manufacturing sectors informs our projection of a 1% contraction in non-oil GDP. Ergo, we expect the economy to shrink by 1.98% YoY in Q4 20, which translates to a FY 20 real GDP contraction rate of 2.46% YoY.
- Central to growth over 2021 is a gradual recovery in economic activities 2021 as well as the favorable base effect in both the oil and non-oil sectors. For starters, barring any shock in 2021, we expect a recovery in the oil sector over FY 2021, hinged on the easing of OPEC production cut. Likewise, on the non-oil leg, we anticipate a recovery across Manufacturing, Construction and Services sectors, while the Agric sector is expected to improve over 2021, barring any lockdown. On the other hand, we foresee a slower contraction in Trade sector, as the reopening of the land borders in January 2021 should provide respite for this sector. Hence, barring a second lockdown, which could occur due of the second wave of the pandemic, we expect the Nigerian economy to grow by 1.5% YoY – which is our base case.
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