FREE

Nigeria Gross Domestic Product - Q3'18: Weak growth momentum continues in Q3

Weak growth momentum continues in Q3                                                                         

Nigeria’s economic growth for Q3’18 printed at 1.8% y/y, compared to Vetiva and Consensus forecasts of 1.5% y/y and 1.9% y/y respectively, driven by growth in the non-oil sector as the oil sector contracted 2.8% y/y during the period. The services sector (52% of the economy) led growth with a 2.6% y/y reading, trailed by manufacturing (9% of economy) and agriculture (29% of economy) which both grew at 1.9% y/y. Notably, Q3’17 GDP growth was revised downward from 1.4% y/y to 1.2% y/y, based on updated oil production numbers for the quarter.                                                                            

The National Bureau of Statistics estimated oil production for the third quarter at 1.94 mb/d, just below Vetiva estimate of 1.97 mb/d. As oil production came in lower y/y, the oil sector contracted 2.8% y/y. OPEC data pegs Nigeria’s production at 1.75 mb/d (excl. condensates) in October, the baseline from which it must make cuts estimated between 0.04 and 0.05 mb/d as part of the OPEC deal in the first six months of 2019. Based on our condensates projection of 0.3 mb/d (2018 ytd is 0.22 mb/d), we forecast average oil production of 2 mb/d in 2019 (Bull: 2.1 mb/d, Bear: 1.8 mb/d), bringing 2019 oil sector GDP growth to 2.9% y/y.                                                                            

The services sector was the star of the Nigerian economy in the third quarter, notching GDP growth of 2.6% y/y—highest since Q4’15 growth of 3.4% y/y. However, this was mainly due to a 12.1% y/y GDP growth in ICT, on the back of impressive growth in telecoms. The Real estate sector (-2.7% y/y) shrank once again whilst Finance & Insurance contracted 4.8% y/y (Q2’18: +1.3% y/y). One notable green shoot beyond ICT was Trade, which posted positive growth of 1.0% y/y for the first time this year, and we are hopeful that this points to a turn in overall business conditions.                                                                

2019: 2.7% y/y GDP growth expected                                                                    

Generally, we expect the final quarter of 2018 to be similar to the third quarter. In addition, election spending and delayed budget expenditure should support economic momentum. As a result, we forecast growth of 2.0% y/y in Q4’18, bringing FY’18 GDP growth to 1.8% y/y (IMF: 1.9% y/y). Looking at 2019, as oil sector growth is expected to be minimal, economic momentum is tied to the strength of recovery in non-oil sectors. We are not optimistic about the contribution of the agriculture sector to this cause given the recent significant upheaval in the sector, but we expect higher aggregate demand in 2019—driven by government spending and a minimum wage hike—to boost industrial output and services. We highlight price and FX instability and political jitters as the key risks to growth in 2019. Overall, we forecast 2.7% y/y GDP growth for the year.