Nigeria’s economy expanded 3.5% year-on-year in the second quarter, accelerating from the first quarter’s 3.1% expansion. Moreover, back-to-back data indicated a recovery in underlying momentum as the economy contracted 0.4% sequentially in the second quarter, up significantly from the first quarter’s 14.7% decline.
The annual acceleration was driven by a smaller contraction in the main oil sector. Sector production contracted by 11.8% in the second quarter compared to the same period a year earlier, which is less than the first quarter’s decline of 26.0%. Oil production fell in the period to 1.43 million barrels per day from 1.49 million barrels per day in the first quarter. The sector suffers from security problems related to theft and ongoing instability in the Niger Delta. Meanwhile, the non-oil sector, which has been the main driver of growth since late 2020, expanded at a slower pace of 4.8% in the second quarter (Q1: +6.1% YoY). The main driver behind this was moderate growth in the agriculture and services sectors. It is possible that the latter felt the pressure of increasing inflationary pressures that eroded real income. Finally, the industrial sector rebounded in the period and expanded by 2.3% (Q1: -6.8% YoY).
The economy was supposed to maintain a similar pace of growth in the third quarter despite several headwinds. Private sector operating conditions improved at a solid rate in July-August. However, the risks tend to the downside. The slow local vaccination campaign will see Covid-19 survive a feature of the economy in some way; Less than a fifth of the population had received the first dose by August 21, and less than 14% had received full vaccinations. Moreover, rising unemployment and mounting price pressures will dampen household spending, while security issues and social tensions pose additional downside risks.
Despite numerous headwinds, the Nigerian economy is expected to register strong growth this year and next. Analysts at EIU added:
“The Nigerian economy has the talent to operate at a low but positive growth rate even when faced with high inflation, weak currency (in this case on the parallel market) and rampant instability, affecting agricultural production in particular. […] Added to this mix so far in 2022 are lower oil production, energy shortages, and monetary tightening.”
FocusEconomics committee members expect the economy to expand 3.1% in 2022, 0.1 percentage point higher than last month’s forecast. In 2023, GDP growth is expected to be 3.0%.