EUR 3.58 For Business Accounts Only

Q2 17 GDP - Higher oil production sparks GDP resurgence

• Data released by the NBS showed that Nigeria’s economy posted a year-over-year growth of 0.55% in Q2 2017, following five consecutive quarters of economic contraction. Most of the recovery came through a rebound in the oil sector (YoY:  Q2 17: +1.6%; Q1 17: -11.6%) and resilience in Agriculture output which kept non-oil GDP in the positive territory (Q2 17: 0.4% YoY, Q1 17: 0.7% YoY). The rebound in the oil sector is perhaps the best news from the Q2 release as this shows that oil production has recovered from 2016 battered levels. However, not all data in this release was positive. The slower pace of expansion in non-oil sector reflected vapid growth in Agriculture and Manufacturing even as Services sector contracted.
• Real GDP growth has topped expectations, largely on the back of the rebound in the oil sector. July’s OPEC data indicates Nigeria’s production of 1.75mbpd. Thus, using an average 28-month spread between NNPC and OPEC production data, we think production printed around 1.93mbpd in July – closer to 1.96mbpd (excl. condensate) stated by the Petroleum minister and in sync with our H2 17 estimate of 1.9mbpd. Consequently, using our production estimate, we now expect oil GDP growth of 18% and 8% YoY for Q3 and Q4 17 respectively – bolstered by the weak base in the corresponding period of 2016. However, the contraction in ICT, as the sector appears to have touch its peak, guides to sustained contraction in Services. Juxtaposing that with our earlier view on agriculture and manufacturing, we now look for non-oil GDP growth of 0.3% and 0.4% YoY in Q3 and Q4 17 respectively. Consequently, we forecast real GDP growth for Q3 17 and Q4 17 of 1.7% and 0.9% YoY accordingly. On this basis, we revise our 2017 real GDP forecast slightly lower to 0.6% YoY (previous: 0.8% YoY).
• Given the expected pickup in Nigeria’s economic activities, we believe the apex bank would focus its efforts on ensuring currency and price stability. On inflation, flooding in key agricultural producing regions should create fresh pressures on food inflation in coming months. Hence, we expect concerns over inflation and subsisting worries on the currency front to sustain CBN’s contractionary monetary policy. That said, cessation of the one-year OMO paper and gradual reduction in clearing rates suggest that the country may be close to the peak of a tight monetary regime.
• See attached for full report