Analysts Cut Nigeria's Growth Estimate for H2:2023
President Bola Tinubu

Analysts Cut Nigeria’s Growth Estimate for H2:2023

On the back of weak indices, Nigeria’s leading investment firms have signaled that the local economy may not meet initial expectations for the current year. Growth has been tepid, sliding as households come under pressures from government actions and inactions – especially the naira crisis in the first quarter of the year.

In its macro update, CSL Stockbrokers Limited said it has reviewed the real gross domestic product (GDP) growth forecast for the fiscal year 2023 down to 2.8% from an earlier forecast of 3.1%. 

In the first quarter of 2023, Nigeria’s GDP growth fell to 2.31% from 3.11% in the comparable period in 2022, and 3.52% in Q4 2022 according to the National Bureau of Statistics (NBS). The decline in the country’s growth rate was attributed to the adverse effects of the Naira cash crunch which disrupted economic activities during the quarter.

“We believe that the decline in Nigeria’s economic growth rate in Q1 was largely due to the Naira scarcity and the 2023 general elections which disrupted economic activities in the country”. Analysts attribute improvements seen in the oil sector to improved production volumes as the country reaped the benefits of its aggressive clampdown on crude oil theft.

The average crude oil production volume (with condensates) of 1.52 million barrels per day (mbpd) was reported in Q1 2023 with an average price of US$83.97/bbl. Oil production slowed down in Q2 2023 with an average production volume of 1.38mbpd and an average price US$77.73/bbl.

“We have revised our forecast for production for FY 2023 to 1.48mbpd from 1.6mpbd previously”, CSL stockbrokers said in its macro update for the second half of 2023. However, analysts said they expect the devaluation of the currency to lead to improved output numbers for the oil sector and as such we retain our forecast that the oil sector will exit a recession in 2023

The manufacturing sector grew modestly by 2.4% in 2022, reflecting the negative impact of CBN’s hawkish rendition, especially in the year’s second half. In fact, the sector contracted by 1.91% in Q3 2022, the first contraction since covid hit in 2020.

Though at a slower pace, the CBN has maintained its hawkish stance and the fortunes of the sector appeared to have worsened with the latest reforms of the new administration such as the fuel subsidy removal and the unification of the exchange rates at the various windows.

 In Q1 2023, the growth rate reduced to 1.61% compared with 2.83% in Q4 2022. Analysts believe the conditions will worsen in the year’s second half.  However, CSL Stockbrokers expect the service sector to maintain its growth pace in the second half of 2023, supported by gains from ICT.

“In our view, the rollout of the 5G network and the growing expansion of mobile money should drive ICT output. Elsewhere, we expect trade to positively impact the services sector, profiting from an improved export position”.

The firm revised the GDP forecast for 2023 down to 2.8%. The oil sector, which has been in a three-year recession, showed some improvement in Q1 2023 but production numbers declined in Q2 2023.  CSL Stockbrokers believes production numbers will likely perform below expectations.

“Our expectation was based on the increased pipeline surveillance and the clampdown on oil theft by the government. However, production numbers have not recovered as fast as expected and oil prices have softened.

“We project an average crude oil production (including condensates) of 1.50mbpd in H2 compared with 1.45mbpd in H1, implying average production of 1.48mbpd for 2023 compared with our earlier forecast of 1.6mbpd for 2023”.

That said, the firm expects that the impact of the Naira devaluation on oil sector output numbers will aid the sector’s recovery.

“We had expected the completion of Dangote’s refinery to boost refined petroleum exports while simultaneously offering structural tailwinds to FX liquidity but the likelihood of operations beginning this year seems remote.

“We also expect growth in the agricultural sector to remain subdued as the insecurity issues persist in the food-producing regions and weather conditions remain unpredictable.

“We expect inflation and the rising interest rate environment to continue to depress consumer purchasing power and raise the cost of doing business over the year while the constrained fiscal space will likely depress government consumption”, the firm said. #Analysts Cut Nigeria’s Growth Estimate for H2:2023 Nigerian Treasury Bills Yield Rises to 7%

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