Nigeria’s Painful And Fragile Recovery

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Last week, the National Bureau of Statistics (NBS) released the GDP report for Q4-2020 reporting the country’s exit from its prior two-quarter slump, as real GDP growth printed at 0.1%.

Evidencing further recovery, the economy expanded 9.7% q/q in Q4-2020, reflecting the sustained momentum generated by relaxing of Covid-19 restrictions.

Despite the recovery, the fragility of the state of the economy was reflected in the fact that only 7 sectors (previously 9 sectors) expanded in Q4-2020 while 12 sectors (previously 10 sectors contracted.

Nigeria records first positive quarterly y/y growth since Q1-2020

Quarterly GDP growth rate

Nigeria’s Painful And Fragile Recovery Brandspurng
Sources: NBS, United Capital Research

Looking ahead, we remain optimistic on economic recovery for 2021, albeit we note the fragility of the recovery. Our optimism builds on the sustained pace of expansion in Non-oil GDP premised on the low base for 2020, particularly Q2-2021 and Q3-2021.

In addition, we expect a continued return to normality as people continue to regain confidence in conducting pre-pandemic activities. This will support expansion in Services GDP.

That said, we note that growth in Agriculture has been volatile in recent quarters, thus considering its huge contribution to the recent recovery, slower growth in the sector could be a potential trigger to derail the recovery

In the oil sector, we expect improved performance in FY2021 considering the low base for oil production in 2020.

While the country’s production continues to be capped under the OPEC+ quota, we expect a recovery in production as OPEC+ gradually returns production level back to pre-pandemic levels following recent price gains and positive sentiments from increased rate of vaccinations which could spur demand for travel and consequently oil.

Overall, we maintain our base case scenario GDP growth forecast of 1.7% for FY-2021 with a bull case forecast of 2.1% premised on faster than expected recovery in oil sector GDP.

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