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Nigeria Q3'17 GDP - Oil sector keeps economy above water

Oil sector keeps economy above water                                                               

Registering at 1.4% y/y, Nigeria’s Q3’17 GDP growth came in below Vetiva and Consensus estimates of 2.5% and 1.5% respectively, albeit above the growth recorded in Q2’17 (0.7% y/y) and Q3’16 (-2.3% y/y). Consequently, ytd economic growth stands at 0.4% vs. -1.5% in 9M’16, showing the tepidness of Nigeria’s economic recovery. Particularly, recovery has also been concentrated in the oil sector (up 25.9% y/y in Q3’17) compared to non-oil sector growth of -0.8% during the quarter. Notably, whilst Nigeria’s underlying economy has been flat in the past two years, the volatility has primarily come from the oil sector amidst sizable fluctuations in oil volumes in recent times.                                                                          

Buoyed by stronger quarterly average production of 2.03 mb/d (Q3’16: 1.61 mb/d), the oil sector expanded 26% y/y in the quarter to lift Nigeria’s GDP. Q2’17 oil sector GDP growth was also revised to 4% (previous: 2%) after the National Bureau of Statistics raised its Q2’17 oil production estimate from 1.84 mb/d to 1.87 mb/d. The outlook for the oil sector is more positive than it has been since 2015, and with October production estimated at 2.03 mb/d, we expect growth to remain resilient here.                              

Posting a 2.4% y/y contraction in Q3’17, the weakest since the Nigerian economy took an adverse turn at the start of 2016, the services sector shows the scale of the present slump in the non-oil economy. With consumer belts still tightened, all major sub-sectors contracted during the quarter.                                                                                

Mellow outlook for Q4, 2018 much brighter                                                                       

Given the persistent weakness in the non-oil sector and a higher oil production base from Q4’16 (average production: 1.76 mb/d vs. 1.61 mb/d in Q3’16), we anticipate a slowdown in economic growth to 1.0% y/y in the final quarter of the year, translating to FY’17 growth of 0.6% y/y (2016: -1.5% y/y). We further highlight that as the oil sector is the primary driver of growth here, any negative oil shock would materially alter this view. Nevertheless, we are optimistic about economic developments in 2018. The combination of still-rising oil production, receding inflation, and strengthening consumer wallets should boost the economy. Meanwhile, as we anticipate monetary easing early in 2018, we see this supporting aggregate demand during the year – propelling the economy to annual growth of 2.0% in 2018 (IMF: 1.9%, MTEF: 3.5%).