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NSR H2 2020 Excerpts - GDP - A Recession Looms

• In this report, we focus on development in the domestic environment, highlighting our views on the drivers for growth over 2020.
• The fragility of Nigeria’s economic growth became more apparent this year, following the outbreak of covid-19. Highlighting the absence of catalysts at the start of the year to stimulate an economic expansion, we expected growth to flatline at 2.3% YoY. However, the emergence of the novel COVID-19 virus threw a curveball to all sectors of the economy. Pertinently, the imposition of containment measures by the government in three key states such as the lockdown led to a halt in production of non-essential services and invariably crippled activities in the non-oil sector. Also, the pandemic adversely impacted the oil sector, as a sharp drop in global demand and minimal storage capacity left the country with a lot of unsold cargoes, placing a cap on crude production.
• Given these developments ensued at the rear of Q1 2020, the economy still expanded over the aforementioned period by 1.87% YoY, albeit slower than the outturn of 2.55% YoY recorded in Q4 19. While improved average crude oil production at 2.07mbpd (Q4 19: 2.0mbpd) during the review period spurred growth in the oil sector to 5.1% YoY, the non-oil sector anchored the slowdown in overall GDP.
• As stated above, the emergence of the pandemic in Nigeria and its impact on economic activities towards the end of Q1 2020, changed the narrative for 2020 growth estimates. For starters, we expect the oil sector to contract in FY 2020 hinged mainly on the need to comply with OPEC production cut. Similarly, we expect contractions in Trade and Construction sectors and a slowdown in services and Agric. On a subsector basis, save for ICT (2020 forecast: +9% YoY), we expect to see contractions or a slowdown across all subsectors. Our stance is hinged on the interruption in the production of non-essential services, restriction in movement domestically and globally as well as technical devaluation of the Naira. On that note, barring a second wave of the pandemic, we expect the Nigerian economy to contract by 1.6% YoY – which is our base case.