Afrinvest downgrades 2019 real GDP growth outlook to 2.2%

A foremost investment banking firm, Afrinvest, has reviewed down real gross domestic products (GDP) growth outlook to 2.2% after weaker performance in the second quarter 2019 of the year.

According to Afrinvest, “We downgrade our growth forecast for 2019 to 2.2% from the initial expectation of 2.5%, driven by the slower than expected growth in the non-oil sector”.

Afrinvest stated that there is scope for improvement in agriculture sector due to the harvest season in the second half of 2019 but of the view the sector is not out of the woods due to prolonged security issues.

The investment banking firm expects a muted recovery in the manufacturing and services sectors due to still weak but slowly improving consumer spending.

In the oil sector, we expect sustained growth due mainly to a weak base and our expectation of better output in the second 2019, it added.

“Specifically, we see room for growth in oil production year on year but marginal growth Q-quarter on quarter due to persistent challenges to oil production.

“We note that elevated insecurity as well as lower oil production and oil price are the major downside risks to our forecast. Looking ahead, we see weak prospects for growth above 3.0% in the medium-term due to structural constraints”, analyst noted.

Meanwhile, Afrinvest positioned that in the absence of fast-paced reforms in priority sectors and improved fiscal conditions; we expect growth to remain below the average of 7.1% between 2000 and 2014.

The recently released second quarter 2019 2019 GDP report revealed that the Nigerian economy expanded at a slower pace of 1.9% as against 2.1% in the first quarter of 2019.

The data came weaker than Bloomberg’s consensus forecast of 2.5%, due to slow growth in the non-oil sector.

The oil sector recovered from its year-long recession, expanding 5.2% year on year second quarter 2019 as against -1.5% in Q1:2019.

Afrinvest said that this recovery can be attributed to a weak base as oil production increased 7.6% year on year to 1.98 million barrel per day (mbpd) but contracted 0.5% quarter on quarter.

We highlight that oil sector growth in first quarter in 2019 was revised to -1.5% from -2.4% due to an upward adjustment in oil production to 1.99mb/d from 1.96mb/d, the firm said.

The trend in oil production in 2019 has been weaker than expected despite optimism of a stronger performance due to the additional 200,000b/d provided by the recently launched Egina Field.

Analysts observed that oil production has been affected by fire outbreaks, force majeure declared by major oil companies, vandalism and the shutdown of export pipelines.

The non-oil sector pulled growth lower in second half of 2019, with a surprising moderation in growth to 1.6% year to year as against first quarter 2019 2.5%, the weakest since first quarter 2018.  This was attributed to the slowdown to a broad-based moderation in major sub-sectors.

Agriculture Sector Growth Slumps, Again

The agriculture sector bucked its recovery trend as growth slowed to 1.8% year on year in second quarter of 2019 compare to 3.2% the first quarter in 2019, the second weakest quarterly performance on record, Afrinvest stated.

Crop production grew at a slower pace of 1.9% year on year compare with 3.3% first quarter in 2019 while the livestock sub-sector contracted 0.01% as against 0.8% the first quarter of 2019.

“In our view, the slowdown in the agriculture sector reflects persistent security issues affecting production in Northern Nigeria as well as the resumption of planting activities in the quarter.

“We believe unresolved insecurity issues would continue to be the biggest risk to the sector in the near term, but we expect improved performance in the second quarter 2019 2019, although this would likely be below the long-term trend of 3.8%”, the investment banking firm added.

Weaker Volumes Restrain Manufacturing Sector Growth

Surprisingly, the manufacturing sector contracted 0.1% year on year in second quarter in 2019 as against 0.8% in the first quarter 2019 driven by an underwhelming performance in its major sub-sectors.

The cement sub-sector grew slower than in the previous quarter at 1.6% year on year as against 2.8% in the first quarter of 2019.

Growth in the food, beverage and tobacco sub-sector also softened to 1.2% year on year as against 1.8% in the first quarter of 2019.

Meanwhile, the textile, apparel and footwear sub-sector contracted 1.4% year on year compare to 1.0% in the first quarter of 2019, the weakest since second quarter of 2018.

The slowdown mirrors the performance of publicly listed manufacturing companies which recorded weak volumes in the first half in 2019 due to weak consumer spending.

Afrinvest said, “Going forward, we expect an improved performance in H2:2019, driven by the seasonal boost to demand and stable exchange rates”.

Weakness in Trade and Real Estate Dampen Services Growth

In line with our expectations, the services sector further moderated, growing slowly at 1.9% year on year in the second quarter of 2019 compare to 2.4% in the first quarter in 2019.

The slowdown was widespread across the main sub-sectors, including the ICT sector with a strong growth of 9.0% rate which was slower than 9.5% in the first quarter in 2019.

The telecommunications sector maintained its double-digit growth but slowed to 11.3% year on year as against 12.2% the first quarter of 2019.

Conversely, the recovery in the trade and real estate sub-sectors was short-lived as both contracted at 0.3% and 3.8% year on year respectively as against 0.9% apiece in the first quarter of 2019.

The financial services sector sustained its negative growth but at a slower pace of -2.2%, compared with -7.6% year on year in the preceding quarter.

There was a similar trend in the construction sub-sector, which moderated sharply by 0.7%  year on year in the first quarter in 2019 as against 3.2% in the first quarter 2019.

“We suspect that the partial closure of the Nigeria-Benin border by the FGN due to increased smuggling activities is likely to weigh on services growth in third quarter in 2019”, Afrinvest stated.

Afrinvest downgrades 2019 real GDP growth outlook to 2.2%

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