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Nigeria Q1'17 GDP - Promising signs amidst milder contraction

​Promising signs amidst milder contraction

Nigeria’s economy contracted on a year-on-year (y/y) basis in the first quarter of the year as real GDP shrank by 0.5%, better than Vetiva estimate (-0.7%) and also the smallest contraction recorded during this period of recession. The oil sector (11.5% down y/y) was the singular cause of the contraction as the non-oil sector rose 0.7% y/y – improving on the 0.2% contraction recorded in 2016. Growth in Agriculture (3.4% y/y) and Manufacturing (1.4% y/y) outweighed a 0.3% decline in Services, the largest component of the economy (64%). Continued growth in Agriculture, a minor rebound in Manufacturing amidst greater access to foreign exchange, and notable green shoots in the Services sector contributed to the softer contraction seen in the quarter.

Economic rebound expected in Q2’17
Indicators suggest that Nigeria’s economy is on an upward curve (April Manufacturing PMI: 51.1) and we expect the economy to post its first positive growth figure in six quarters come Q2’17. The oil sector, which has been the biggest drag on growth so far, should rebound as oil production recovers relative to 2016 levels. Meanwhile, improvements in Manufacturing and a broad range of Services sub-sectors should continue, barring any stoppage to CBN FX injections. Whilst the 2017 Budget is unlikely to have a significant effect in the quarter, base effects from a dire Q2’16 (down 1.5% y/y) should support headline GDP growth. Overall, we project an expansion of 2.1% (unchanged from previous forecast) in Q2’17 and cumulative growth of 2.0% (Previous: 1.9%) for FY’17. Accelerated capital expenditure, especially with regards to social welfare schemes, and decelerating inflation provide an upside for our forecast.