Covid-19 pushes Nigerian economy into third recession in five years

—as GDP contracts by 3.62% in Q3 2020

The Nigerian economy officially plunges into recession as the country’s GDP in real terms declined by -3.62% in Q3 2020, the second contraction in 2020.

Nigeria’s Gross Domestic Product (GDP) in real terms declined by -3.62% (year-on-year) in Q3 2020, thereby marking a full-blown recession and second consecutive contraction from -6.10% recorded in the previous quarter (Q2 2020).

This is according to the third quarter (Q3) GDP report, released by the National Bureau of Statistics (NBS) on Saturday.

According to the report, the performance of the economy in Q3 2020 reflected residual effects of the restrictions to movement and economic activity implemented across the country in early Q2 in response to the COVID-19 pandemic.

Oil Sector plunges

In Q3 2020, the oil sector contracted by –13.89% (year-on-year), indicating a sharp contraction of –20.38% points relative to the rate recorded in the corresponding quarter of 2019.

Furthermore, oil sector decreased by –7.26% points when compared with growth recorded in Q2 2020 (6.63%).

The sector contributed 8.73% to total real GDP in Q3 2020, down from 9.77% and 8.93% respectively recorded in the corresponding period of 2019 and the preceding quarter, Q2 2020.

The average daily oil production recorded in the third quarter of 2020 stood at 1.67 million barrels per day (mbpd), or 0.37mbpd lower than the average production recorded in the same quarter of 2019 and 0.14mbpd lower than production volume recorded in the second quarter of 2020 (1.81mbpd)

Non-oil recedes as manufacturing, trade, others plunge

The Nigeria’s non-oil sector contracted for the second time as the economy continues to reflect the impacts of Covid’19 pandemic.

In Q3 2020, the non-oil sector grew by –2.51% in real terms during the reference quarter, which is –4.36% points lower than the rate recorded in Q3 2019 but 3.54% points higher than in the second quarter of 2020.

Key sectors that contracted in Q3 2020 in the non-oil segment are manufacturing, trade (wholesale and retail) accommodation and food services, real estate among others.

On the other hand, the growth non-oil sector was driven mainly by Information and Communication (Telecommunications), with other drivers being Agriculture (Crop Production), Construction, Financial and Insurance (Financial Institutions).

In real terms, the non-oil sector contributed 91.27% to the nation’s GDP in the third quarter of 2020, higher than its share in the third quarter of 2019 (90.23% ) and the second quarter of 2020 (91.07%).

Agriculture Sector:

Crop Production remained the major driver of the sector, accounting for 92.93% of overall nominal growth of the sector in third quarter 2020.

In the third quarter of 2020, the agricultural sector grew by 1.39% (year-on-year) in real terms, a drop of 0.89% points from the corresponding period of 2019(2.28%), and a decrease of –0.19% points from Q2 2020 (1.58%).

In terms of contribution, the sector contributed 30.77% to overall GDP in real terms in Q3 2020, higher than the contribution in the third quarter of 2019 and the second quarter of 2020 which stood at 29.25% and 24.65% respectively.

Information and Communication:

The Information and Communication, one of the resilient sectors in the Nigeran economy amidst Covid-19, is composed of the four activities of Telecommunications and Information Services; Publishing; Motion Picture, Sound Recording and Music Production; and Broadcasting.

In Q3 2020, Information and Communication sector grew by 14.56% in Q3 2020 from 16.52% in Q2 2020 and 9.88% in Q3 2019, largely driven by Telecommunications & Information Services.

Manufacturing: Manufacturing sector contracted by -1.51% in Q3 2020 from -8.78% in Q2 2020 and 1.1% in Q3 2019. The contribution of Manufacturing to nominal GDP in Q3 2020 was 13.56%, higher than in the corresponding period of 2019 (12.34%) and the second quarter of 2020 (11.79%).

Trade: In real terms, trade’s year on year growth stood at –12.12%, which was –10.67% points lower than the rate recorded the previous year (Q3 2019), but 4.46% points higher than in the preceding quarter at –16.59% growth rate. Trade’s contribution to GDP was 13.88%, lower than the 15.23% it represented in the previous year, and the 14.28% recorded in 2020.

Finance and Insurance: The Finance and Insurance Sector consists of the two subsectors, Financial Institutions and Insurance, which accounted for 88.89% and 11.11% of the sector in real terms in Q3 2020. Financial Institutions sector grew by 6.8% in Q3 2020 from 28.41% in Q2 2020 and 0.61% in Q3 2019. However, Insurance sector contracted by -18.67% in Q3 2020 from -29.53% in Q2 2020 and 3.96% in Q3 2019.

The bottom line of this analysis is that Nigeria’s economy slides into second recession in 5 years.

GDP is Nigeria’s biggest economic data and it measures the monetary value of everything produced in the country. It depicts the nation’s total economic activity. A recession is a period of decline in general economic activity, typically defined when an economy experiences a decrease in its gross domestic product for two consecutive quarters.

The latest contraction in Nigeria’s GDP indicated the second recession in the country in the past 5 years. Recall that the Nigerian economy entered recession in Q2 2020 when GDP contracted by -2.06% for the second time in the year.

Analysts continue to dimension the recovery pattern for the Nigerian economy in 2021, with reputable outlets forecasting a slow recovery pattern on the back of possible second wave of Covid-19 pandemic currently distorting economic landscape in the advanced economies.

IMF has forecasted the Nigerian economy will contract -4.3% in 2020, as the Central Bank continues to drive aggressive intervention to stimulate the economy on the path of recovery.