Nigeria’s recession worsens as GDP nosedives to -2.06%…inflation rate peaks at 17.1% in July •FG says economy performing better than IMF’s prediction

Indications that Nigeria’s economy is yet to retract from depressive trend despite policy palliatives emerged yesterday as the second quarter Gross Domestic Product, GDP, growth rate slowed further to -2.06 per cent, down from -0.36 per cent recorded in the preceding quarter.

National Bureau of Statistics, NBS, gave the indications in the Nigerian Gross Domestic Product Report for Second Quarter of 2016 released in Abuja.

With the development, the economy is gradually plunging deeper into recession, thereby confirming earlier official position as netwell as the International Monetary Fund, IMF’s report a few months ago. The signals of the slowing growth rate of the economy were first confirmed in the first quarter of the year when the GDP growth slumped to all time low of -0.36 per cent.

The report stated that the figure was 1.70 per cent points lower than the negative growth rate of 0.36 per cent recorded in the preceding quarter as well as by 4.41 per cent points from the growth rate of 2.35 per cent recorded in the corresponding quarter of 2015.

The Bureau reported: “Quarter on quarter, real GDP increased by 0.82 per cent during the quarter, nominal GDP was N23, 483,954.78m (in nominal terms) at basic prices. This was 2.73 per cent higher than the second quarter 2015 value of N22, 859,153.01m.
“This growth was lower than the rate recorded in the second quarter of 2015 by 2.44 per cent points.
“The Nigerian economy can be more clearly understood according to the oil and non-oil sector classifications.”

The report showed further that during the period under review, oil production was estimated at 1.69 million barrels per day (mbpd), 0.42 million barrels per day lower from production in first quarter of 2016, adding that oil production was also lower relative to the corresponding quarter in 2015 by 0.36 million barrels per day when output was recorded at 2.05mbp.

According to the agency, growth in the non-oil sector was largely driven by the activities in seven areas of the economy namely, agriculture, information and communication, water supply, arts entertainment and recreation, professional scientific and technical services, education and other services.

The Bureau noted that the seven areas grew positively during the period under review compared to the remaining 19 major sectors, many of which are substantially indirectly dependent on the oil sector, which recorded negative growth.

“The non-oil sector accordingly, declined by 0.38 per cent in real terms in the second quarter of 2016. This growth rate was 0.20 per cent points lower than the first quarter of 2016 (-0.18 per cent), and 3.84 per cent points lower from the corresponding quarter in 2015 (3.46 per cent).
“In real terms, the non-oil sector contributed 91.74 per cent to the nation’s GDP, higher from shares recorded in the first quarter of 2016 (89.71 per cent) and the second quarter of 2015 (90.20 per cent),” NBS noted.

Analysts have attributed the slowing GDP rate to a combination of micro and macro economic factors, particularly shocks and disruptions in crude oil production and exports over the past few months.
For instance while incessant attacks on oil pipelines by militants in the Niger Delta region is seen by development experts as primarily undermining revenue earning potential of government, the spill-over effects of such disruption of hydrocarbon resources production are also affecting power generation, a major input required by manufacturing and other critical sectors.

During the period under review, the slump in oil prices has drained Nigeria’s foreign currency reserves while efforts by government to boost non-oil sector have largely been hampered by infrastructure gap and forex-policy.

Reflecting on the latest GDP growth rate, Africa economist at Capital Economics, John Ashbourne, pointed out that “much of the blame for this must fall on Nigerian government. Import restrictions have crippled the manufacturing sector, which was long seen as a potential driver of non-oil growth.”

In a related development, the nation’s Consumer Price Index, CPI, which measures the general price level in any economy, also reflected a worrisome trend in July, rising to 17.1 per cent, up from the 16.5 per cent recorded in June. This represented 0.6 per cent points higher from the points recorded in June.

NBS, in the CPI Report also published yesterday stated that increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions which contributed to the Headline index reflecting higher prices across the economy.

It stated: “The pace of the increase in the headline index was however weighed upon by a slower increase in three divisions – Health, Transport, and Recreation and Culture. The onset of the harvest season is yet to have a significant impact on food prices.

“It is yet to have a significant impact as the Food Sub-index increased by 15.8 per cent (year-on-year) in July, 0.5 per cent points lower from rates recorded in June.
Prices however increased at a slower pace across a few groups within the Food sub-index namely Milk, Cheese and Eggs; Oils and Fats; and Fruits.”

The report showed further that imported foods as reflected by the Imported Food Sub-index increased by 0.4 per cent points from June to 20.5 per cent in July while Energy and energy related prices continued to be the largest increases reflected in the Core sub-index.

“In July, the Core sub-index increased by 16.9 per cent during the month, up by 0.7 per cent points from rates recorded in June (16.2 per cent).

“During the month, the highest increases were seen in the Electricity, Liquid Fuel (kerosene), Solid Fuels, and Fuels and Lubricants for Personal Transport Equipment groups.
“Month-on-month, the Headline index increased albeit at a slower pace for the second consecutive month in July. The index increased by 1.3 per cent in July, 0.4 per cent points from 1.7 per cent recorded in June,” the Bureau added.

Meanwhile, the Federal Government has said that the GDP figures for the 2016 second quarter by NBS while confirming a temporary decline also indicated hopeful expectation in the country’s economic direction.

A statement issued yesterday by Senior Special Assistant on Media and Publicity in the office of the Vice President, Mr. Laolu Akande, said besides the growth recorded in the agriculture and solid mineral sectors, the economy in response to the policies of government was also doing better than what the IMF had estimated.

According to him, there are clear indications that the second half of the year would be even much better.

He said the President Muhammadu Buhari-led administration would continue to work diligently on the economy and engage with all stakeholders to ensure that beneficial policy initiatives are actively pursued and the dividends delivered to the people.

In his own reaction, Special Adviser to the President on Economic Matters, Dr. Adeyemi Dipeolu, said the NBS report showed that GDP declined by -2.06% in the second quarter of 2016 on a year-on-year basis.
He noted that the data showed that the outcome was mostly due to a sharp contraction in the oil sector due to huge losses of crude oil production as a result of vandalism and sabotage.

Dipeolu noted that the rest of the second quarter data was beginning to tell a different story as there was growth in the agricultural and solid minerals sectors which are the areas in which the Federal Government has placed particular priority.

“Agriculture grew by 4.53 per cent in the second quarter of 2016 as compared with 3.09 per cent in the first quarter. The metal ores sector showed similar performance with coal mining, quarrying and other minerals also showing positive growth of over 2.5 per cent. “Notably also, the share of investments in GDP increased to its highest levels since 2010, growing to about 17 per cent of Gross Domestic Product.

“The manufacturing sector though not yet truly out of the woods is beginning to show signs of recovery while the service sector similarly bears watching.

“Nevertheless, the data already shows a reduction in imports and an increase in locally produced goods and services and this process will be maintained, although it will start off slowly in these initial stages before picking up later.

“The inflation rate remains high but the good news is that the month-on-month rate of increase has fallen continuously over the past three months.

“Unemployment remains stubbornly high which is usually the case during growth slowdowns and for reasons of a structural nature.
“The picture that emerges, barring unforeseen shocks, is that the areas given priority by the Federal Government are beginning to respond with understandable time lags to policy initiatives.

“Indeed, as the emphasis on capital expenditure begins to yield results and the investment/GDP numbers increase, the growth rate of the Nigerian economy is likely to improve further.

“As these trends continue, the outlook for the rest of the year is that the Nigerian economy will beat the IMF prediction of -1.8 per cent for the full year 2016.

“The IMF had forecasted a growth of -1.8 per cent for 2016, however the economy is performing better than the IMF estimates so far.

“For the half year it stands at -1.23 per cent compared to an average of -1.80 per cent expected on average by the IMF.

“What is more, it is likely the second half will be better than the first half of 2016. This is because many of the challenges faced in the first half either no longer exist or have eased,” he said.