Economic Growth Moderates on Waning Base Effects

Economic Growth Moderates on Waning Base Effects

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In line with our expectation, Nigeria’s economy grew slower in Q3-21 compared to the prior quarter, as the impact of the favourable base from the prior year began to dissipate. According to the recently released GDP report by the National Bureau of Statistics (NBS), the Nigerian economy grew by 4.03% y/y in Q3-21 (Q2-21: +5.01% y/y). The GDP print outperformed our estimate of 3.76% y/y, due to the better-than-expected Service sector’s performance. Analysing the breakdown provided, we note that the Oil sector declined by 10.73% y/y (Q2-21: -12.65% y/y) while the Non-oil sector grew slower by 5.44% y/y (Q2-21: +6.74% y/y). Using attribution analysis, the GDP growth in the quarter was primarily driven by Services and Agriculture, which contributed 4.01% and 0.38%, respectively. The growth in both sectors helped to neuter the negative contribution of Industries (-0.35%) to the GDP growth rate.

Terminal shut-ins continue to weaken the Oil sector

The Oil sector contracted for the sixth consecutive quarter, declining by 10.73% y/y in Q3-21 (Q2-21: -12.65% y/y) in line with the persistent production challenges facing the sector. The production decline has been due to the impact of (1) infrastructure decay and (2) complexities of operating the oil wells, both of which have led to terminal shut-ins in some of the country’s major production facilities. The former involves pipeline damages, low pressure, valves integrity issues, and challenges with the water injection pump. On the latter, given that some of the significant oil wells were closed during the COVID-19 pandemic, it has been difficult getting them back to normalcy post-COVID due to the complexities involved in operating the facilities. Accordingly, crude oil production (including condensates) printed 1.57mb/d in Q3-21 (Q2-21: 1.61mb/d) – the lowest since Q4-20 (1.56mb/d).

Trade and Telecoms boost the Non-oil sector’s performance

Like the prior quarter, the Trade sector’s (+11.90% y/y vs Q2-21: +22.49% y/y) performance was a major booster to the Non-oil sector’s growth. The sustained double-digit growth reflects the impact of the (1) favourable base from the prior year and (2) continued gains from the sustained reopening of the economy and the land borders. Similarly, the Telecoms sub-sector grew by 10.87% y/y (Q2-21: +5.90% y/y), reflective of the early gains associated with the Government’s decision to lift the ban on sales of new SIM cards. Elsewhere, the Financial institutions sub-sector bounced back into the positive region after three consecutive quarters of decline, growing by 25.50% y/y (Q2-21: -4.54% y/y) – the highest since Q2-20 (+28.41% y/y). That said, the Manufacturing sector grew stronger by 4.29% y/y (Q2-21: +3.49 y/y), reflective of the knock-on effects of improved FX supply and continued recovery in aggregate demand. However, growth in the Agriculture sector (+1.22% y/y vs Q2-21: +1.30% y/y) slowed to the lowest since Q2-18 (+1.19% y/y), reflecting the impact of the unabating securities challenges on the sector. Overall, the non-oil sector grew by 5.44% y/y (Q2-21: +6.74% y/y).

We expect the economy to grow by 2.44% y/y in Q4-21

On the one hand, we do not expect the Oil sector’s production challenges to abate in the short term, given the nature of challenges constraining output. Hence, we are more pessimistic with our expected output losses from terminal shut-ins in Q4-21 than we forecasted in Q3-21. Accordingly, we estimate crude oil production (including condensates) to settle at 1.61mb/d in Q4-21 (prior estimate: 1.75mb/d), translating to a growth of 3.21% y/y. On the other hand, we expect the Non-oil sector’s growth to moderate to 2.40% y/y in Q4-21, driven by the Service and Agriculture sectors amidst the waning base effects from the prior year. Overall, we expect growth to settle at 2.44% y/y in Q4-21 and revise our 2021FY growth forecast to 2.94% y/y (Previously: 2.68% y/y).



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