Nigeria’s GDP Growth to Taper on Weaker Oil Output – Analysts
Nigeria’s economy grew by 3.19% year on year in the second quarter of 2024, according to a quarterly gross domestic product (GDP) report released by the National Bureau of Statistics.
This was a moderate boost when compared with 2.98% growth reported in the first quarter of the year. The economy expanded as oil output increased in the period. Analysts believe low investment in oil infrastructure has been the downside to foreign currency receipts from hydrocarbon sales.
Nigeria depends heavily on oil exports sales to drive economic growth. By historical pattern, gross domestic product growth records achieved in the past depends on oil production supply into the global market.
The oil sector rose sharply by 10.15% year on year in the period. Specifically, average crude oil production rose by 15.6% year on year to 1.41 million barrels per day in Q2, compared to the 1.22 million barrels per day in Q2-2023, although this was lower than the 1.57 million barrels per day recorded in Q1-24.
In its commentary note, CardinalStone said economic growth may taper over weaker oil output. Analysts recall that NNPC Limited has recently declared a state of emergency on oil production, with supplies struggling to meet the demand of local refineries and export needs.
The investment firm noted that growth in the non-oil sector was largely unchanged at 2.8% year on year in Q2’24 when compared to the prior quarter.
It said in line with expectation, the flattish growth reflects a slower outturn of 4.4% year on year in the services sector as against 5.4% in Q1, a development that mirrored NIN-SIM link drags on the ICT sector.
“While growth in the financial sector moderated. This may be linked to the elevated interest rate environment and symptoms of a crowding-out effect, given the aggressive borrowings by the government in H1’24”, the firm said.
“Our cautious outlook on trade, real estate, and manufacturing sectors panned out as expected, given their sensitivities to interest rate movements, coupled with sustained FX pressures and tight consumer wallets”. CardinalStone said in its note.
Elsewhere, the agricultural sector surprised positively, growing by 1.4%, up from 0.2% in Q1, reflecting the commencement of a new harvest season, especially in the southern parts of the country.
Analysts at CardinalStone forecast that GDP growth may slow to 3.0% in the third quarter of the year. The firm said the oil sector, which has been the main driver of growth in the last two quarters, will likely experience output slowdown in Q3-2024 due to the high base effect.
Analysts however noted the plans of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to reactivate short-in wells, the commencement of licensing rounds, and the review of the current oil exploration leases.
The investment firm is of the view that this should support oil production in the medium term, indicating an upside risk to CardinalStone expectation.
“We expect the non-oil sector to record a modest improvement. For context, we expect the recent Nigerian Communications Commission (NCC) order to reactivate SIM cards affected by the NIN-SIM link verification exercise to bode well for the ICT sector”.
The firm said the CBN’s less aggressive action and sustained moderation in inflation are likely to result in a gradual recovery in the trade, real estate, and manufacturing sectors. For the agricultural sector, despite insecurity concerns in food-producing regions, the commencement of the harvest season will likely result in an improved agro output. #Nigeria’s GDP Growth to Taper on Weaker Oil Output – Analysts
