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Nigeria Gross Domestic Product - Q2'18: Economic Growth Slows Amid Agriculture Concerns

Economic growth slows amid agriculture concerns                                                                         

Compared to Vetiva and Consensus estimates of 1.6% and 2.0% respectively, Nigeria’s reported Q2’18 real GDP growth of 1.5% is disappointing. Although our estimate was close to the reported figure, the composition of GDP growth in the period is somewhat surprising. There was a more marked slowdown in agriculture and oil production than we had anticipated, growth in the services sector was robust and the pace of industrial activity slowed, even though we had expected Manufacturing GDP growth to outpace Services—like in Q1’18. The general weakness and volatility of the numbers show the brittleness of the broader economy, and we note that economic growth is too negligible to impact living standards or inequality.                                                                    

At 1.2% y/y, this period’s growth in agriculture output is abysmal (5-year Q2 average: 3.5% y/y), and it is hard not to finger the herdsmen crisis as the culprit here. Efforts to bring an end to the scourge must be complemented with a comprehensive strategy to rehabilitate the Middle Belt region. The ERGP target of 6.9% average agriculture growth between 2017 and 2020 looks unattainable and we project FY’18 agriculture growth as low as 1.9% y/y (Q3’18: 1.8% y/y), the weakest since the 1983 recession.                                                                        

We had anticipated a slowdown in oil production given stoppages in Forcados loadings and Force Majeure on Bonny Light exports for most of Q2’18. However, recorded oil production of 1.84 mb/d still underperformed our 1.90 mb/d estimate, causing the sector to contract 3.8% y/y.  We estimate output of 1.95 mb/d and 2.10 mb/d for Q3 and Q4 respectively, bringing average FY’18 output to 1.97 mb/d, and reflecting a 3.7% y/y growth in the oil sector. The services sector grew at 2.6% y/y, the fastest since Q4’15, and rebounding from a contraction of 0.5% y/y and 0.7% y/y in Q1’18 and FY’17 respectively. This growth was mostly spurred by a 12% y/y expansion in ICT, driven by strong growth in both Telecoms and Broadcasting.                                                                       

Multiple revisions to forecasts - FY'18 projection of 1.7%                                                                           

"Our near-term outlook for agriculture and oil production is more downbeat given the shocks suffered this year, though we are more optimistic about medium-term oil production. We also have a more bearish outlook for the manufacturing sector and a more bullish outlook for services, in line with Q2’18 data. There are not many growth catalysts in 2018, and although election spending would support aggregate demand, rebounding inflation and the threat of insecurity are a worry. Our forecasts for Q3’18 and FY’18 GDP growth are 1.2% y/y and 1.7% y/y respectively (previous: 1.7% y/y and 1.9% y/y), and we expect the underlying economy to remain weak going into 2019.