Bloomberg Reports claim that Nigeria would possibly undergo recession as the Nation’s GDP shrunk in the first quarter of this year.
“Nigeria’s economy risks falling into recession after it shrank in the first quarter as oil output slumped and the manufacturing, financial and real estate industries declined. Gross domestic product in Africa’s largest economy contracted by 0.36 percent from a year earlier, the Abuja-based National Bureau of Statistics said in an e-mailed statement on Friday”.
This compares with growth of 2.11 percent in the previous three months. The median of 17 economist estimates compiled by Bloomberg was for growth of 1.8 percent. Data on the central bank’s website shows that the last time the economy contracted was the second quarter of 2004. The Falling prices of crude oil, from which about 70 percent of state revenues of the country are dependent on, have caused the nation’s economy to diminish as the government struggles to pay salaries and stimulate growth, thus forcing it to increase borrowing.
On May 6, President Muhammadu Buhari signed a record budget of 6.1 trillion naira ($30.6 billion) with a deficit of 2.2 trillion, or 2.14 percent of GDP. Buhari has resisted calls from investors to devalue the naira, which has been fixed at 197-199 per dollar for more than a year.
On Friday, Pabina Yinkere, an analyst at Vetiva Capital Management Ltd. and the only contributor to Bloomberg’s survey who predicted a contraction said
“It’s inevitable that we’ll go into recession. I expect the second quarter to be even worse.”
Nigeria’s economic meltdown is aggravated by the re-emergence of an insurgency in the key oil-producing Niger River delta region. Militants have damaged facilities owned by companies including Chevron Corp. and Royal Dutch Shell Plc, causing output to drop to a 27-year low. While oil output fell to 2.11 million barrels a day in the first quarter, from 2.18 million a year earlier.
Emmanuel Kachikwu, the nation’s minister for petroleum resources, last week said production has dropped to 1.4 million barrels a day due to the attacks. Oil contributed 10.3 percent to GDP in the quarter through March, according to the statistics office.
“It is now likely that Nigeria’s economy will contract over the year as a whole,”
A London-based Africa economist at Capital Economics Ltd., John Ashbourne, said in an e-mailed note to clients.
“We have long warned of a slow-burning crisis in Nigeria. It now seems that this view was too optimistic: the country is headed into a full-blown crisis.”
The statistics officer said Nigeria, which is one of Africa’s biggest oil producers, has been crippled by fuel shortages which is to be blamed for an 8 percent drop in labor productivity in the fourth quarter. The nation imports at least 70 percent of refined fuel because of its inability to refine. Unemployment rose to 12.1 percent in the first quarter from 10.4 percent in the previous three months.
Bismarck Rewane, chief executive officer of Lagos-based consultancy Financial Derivatives Co., said
“We have one more month to evade a recession, and that’s just not going to happen. Let’s not fool ourselves. We’ve had strikes, petrol queues, and disruption of oil production, all showing we’re headed to another negative quarter.”
Governnent announced a 67 percent increase in the price of gasoline hoping it will ease fuel shortages, even as it adds to inflation pressures.
The inflation rate climbed to an almost six-year high of 13.7 percent in April, driven by the increasing cost of fuel.
Ayo Teriba, chief executive officer of Economic Associates Ltd. said The contraction
“shows that Nigerians and particularly the central bank should now reconsider the tightening stance they have embarked upon.”