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Nigeria Gross Domestic Product - Q1'18: Economy underperforms in first quarter of 2018

The Nigerian economy grew by 2.0% y/y in the first quarter of 2018, boosted by a recuperating oil sector, moderating inflation, and stable exchange rate. However, growth came in behind Vetiva (3.4% y/y) and Consensus (2.6% y/y) expectations and was lower than 10 of 12 analyst predictions (as surveyed by Bloomberg). This quarter’s economic performance was better than Q1’17 (-0.9% y/y) but worse than Q4’17 which was revised higher to 2.1% on the back of a higher oil production estimate (from 1.91 mb/d to 1.95 mb/d). This underperformance was driven by the non-oil sector, which grew at 0.8% y/y (Vetiva: 1.8% y/y, Q4’17: 1.5% y/y) as the oil sector expanded by 15% y/y. Furthermore, the slowdown was driven by weaker agriculture growth and a slump in services as industrial output picked up in the period.

The oil sector grew 14.8% y/y in real terms, contributing 10% to overall GDP in the quarter. Recorded oil volumes stood at 2.00 mb/d in the period, in line with Vetiva forecast but slightly below the 2.07 mb/d reported by the Ministry of Petroleum Resources (MPR). Agriculture GDP growth came in at 3.0% y/y, the lowest quarterly real GDP growth since Q2’13. We point to recent challenges plaguing the sector in the form of the August 2017 Benue flooding and ongoing farmer and herdsmen clashes across the Middle Belt region and believe these could be taking their toll on the sector. The manufacturing sector was the brightest positive in the Q1’18 numbers, beating our estimates – 3.4% y/y vs. 2.3% y/y. Most of the joy came from the Food, Beverage & Tobacco sector (5.5% y/y) which accounted for 67% of the growth in manufacturing. Meanwhile, services (-0.5% y/y) was the biggest drag on growth, lagging both Q1’17 (-0.3% y/y) and Q4’17 (0.5% y/y) growth.

2.1% GDP growth expected for Q2 and FY
Nigeria’s economic performance in the first quarter of the year was disappointing, but there are still signs that the recovery could accelerate from this point. Stronger oil prices, further strides taken in the fight against inflation, and strengthening industrial output offer hope for the future. Driven by downward revisions to our expectations for agriculture and services, we forecast 1.8% y/y GDP growth for Q2’18 (previous: 2.1% y/y) and FY growth of 2.1% y/y (previous: 2.4% y/y).