ARM Securities Forecasts Nigeria’s GDP to Shrink 1.95%

ARM Securities Forecasts Nigeria’s GDP to Shrink 1.95%

ARM Securities Limited has estimated that Nigeria’s economy will contract 1.95% in the second quarter of 2020. The assets and resources management firm stated this in a macroeconomic research document obtained by MarketForces.

In the first quarter, the nation reported a 1.87% increase in gross domestic products. In its review, ARM Securities stated that it observed a languid performance in the non-oil sector. The investment firm stated that the Q1 GDP data was a pre-pandemic glimpse into Nigeria’s economy

According to ARM Securities, it stated that data released by the NBS provides a pre-pandemic glimpse into the performance of Nigeria’s economy.

“GDP grew by 1.87% year on year in Q1 2020 relative to our estimate of 1.83%”, ARM Securities stated.

The firm explained that the deviation stemmed from a better than expected performance in the oil sector. Notably, it observed that slower growth was seen in both the oil and non-oil sectors. On the former, growth in the oil sector trimmed to 5.1% year on year relative to 6.4% in Q4 2019.

Whereas, the non-oil sector expanded by 1.5% against 2.3% in Q4 2019. Starting out, the oil sector expanded by 5.1% in Q1 2020, albeit it is a moderation from the growth level recorded over Q4 19. This reflects the base effect from lower crude produced in Q4 18.

Crude oil production improved over the review period printing at 2.07 million barrels per day, relative to 2 mbpd in Q4 19.

“For us, we believe the improved production continues to reflect output at Egina. This has left the country’s overall production hovering around the 2 mbpd mark since 2019”, ARM explained.

At the other end, the tepid growth that was seen in the non-oil sector was attributed to a contraction in trade and moderation in the manufacturing and services sectors. To begin, the trade sector declined by 2.8% year on year, dropped 0.6% against Q4 19.

This performance, ARM Securities believes mirrors border closure, naira depreciation at both the parallel market and the Investors and Exporters window. Elsewhere, the Agricultural sector grew by 2.2%, albeit at a slower pace compared to Q4 2019 of 2.3%.

Marginal moderation in crop production and fishing subsectors anchored the drag in the Agric sector, while analysts saw improved activities in livestock and forestry segments. In addition, growth in the services sector lingered, printing at 3.5%, against 4% in Q4 19.

Specifically, the financial services segment maintained its momentum, expanding by 20.8% year on year compared to 20.2% in Q4 2019. ARM Securities held that the growth mirrors improved loans to the private sector relative to the same period in 2019.

“For starters, we expect the oil sector to contract in Q2 2020 owing to lower crude oil sales compared to the prior period.

The firm connects this to banks striving to meet the 65% LDR requirement placed by the apex bank. Furthermore, the ICT segment supported growth numbers, expanding by 9.71%  due to an increase in subscriber base by 7.4% in Q1 2020.

Q2 2020 GDP – A bleak outlook

ARM Securities explained that the growth picture for Nigeria’s economy in 2020 remains bleak due to a slowdown in economic activities, which began in Q2 2020.

“This is hinged on the adverse impact of the pandemic on crude oil demand and prices, which was further aggravated by the Russia-Saudi Arabia Oil price war”, the investment firm explained.

Analysts at the firm think that the excessive global supplies of crude oil which led to unsold cargoes of crude oil in Nigeria would weigh heavily on the performance of the oil sector in subsequent quarters.

Nigeria’s economy expands 1.87%

Furthermore, the need to fully comply with the agreed OPEC cut of 0.42 mbpd to 1.41 mbpd (excluding condensates) further guides to a contraction in the sector in Q2 2020 relative to the same period in the prior year.

Meanwhile, save for the Agricultural and ICT sectors, the interruption in the production of non-essential services and restriction in movement, as well as technical devaluation of the Naira is expected to inflate pressures in other segments of the non-oil sector.

“Against this backdrop, we expect the economy to contract by 1.95% in Q2 2020”, ARM Securities positioned.

ARM Securities forecasts GDP to shrink 1.95% By Ogochi Ndubuisi