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Q3'16 GDP: Few bright spots amidst further contraction

​Nigeria’s recession deepened in the third quarter of the year with a 2.24% year-on-year (y/y) contraction in real GDP (Bloomberg Consensus: -2.00%, Vetiva: -1.72%). Propelling this contraction, the oil sector shrank 22% y/y as this quarter paled in comparison to a year-best performance in Q3’15. Meanwhile, the broad non-oil sector of the economy arrested recent declines to record a tepid 0.03% y/y growth. Within this, the Manufacturing and Services sectors actually contracted by 4.38% and 1.48% respectively, compared to 3.36% and 1.66% declines recorded in Q2’16. That left Agriculture to once again prop up the Non-Oil sector as it recorded a fine 4.54% y/y (Q2’16: 4.53%) expansion.

Real GDP performance was likely driven by a number of key developments during the quarter. Chief among them was the disruption in oil production amidst shutdowns at Forcados and Qua Iboe terminals. Furthermore, the hike in Monetary Policy Rate to 14% in mid-July is likely to have somewhat dampened lending growth at a time investment was sorely needed. Finally, naira depreciation during the quarter (NGN/USD average of 308 in Q3 vs 210 in Q2) must have weighed heavily on the economy. On the other hand, we expect there was a positive impact of the deregulation of the petroleum downstream sector and rollout of fiscal spending (following full budget passage in May). Nevertheless, it is clear that the magnitude of these improvements was insufficient to counter the adverse developments mentioned above.

With the MPC likely to maintain a tight monetary stance at its final meeting of the year, the responsibility for spurring growth in Q4 lies with the fiscal authorities. However, with the fiscal lag and delays in executing key capital and social investment schemes, we expect efforts here to fall short and Q4’16 GDP growth to come in negative (Vetiva forecast: -1.37%), bringing full year estimated contraction to -1.52% (Previous: -1.32%).