0.5% GDP Contraction: Nigeria May Shock the Global Arena Soon- Otunuga

Following reports on Tuesday that Nigeria’s economy continued its slump and contracted for a fifth consecutive quarter in the three months through March as oil output declined, a research analyst has predicted that current hardship in the country can help Nigeria rediscover her place in the global economy.

Gross domestic product in Africa’s most populous nation shrank 0.5 percent in the first quarter from a year earlier, compared with a revised 1.7 percent contraction of in the final three months of 2016, the Abuja-based National Bureau of Statistics said on Tuesday.

Economy took a hit after oil prices crashed in mid-2014, and militants from the crude producing Niger River delta destroyed pipelines causing production to fall to an almost three-decade low.

That and power shortages weighed down output, causing the GDP to shrink a revised 1.6 percent in 2016, the first full-year contraction in a quarter of a century. Foreign-currency shortages fueled by falling oil exports caused inflation to accelerate every month for more than a year until January.

The oil industry contracted 11.6 percent from a year earlier, the statistics office said.

The International Monetary Fund forecasts the economy will grow by 0.8 percent this year and the World Bank predicts expansion of 1.2 percent. The government said recovery will be driven by a rebound in output of oil, which accounts for two-thirds of its revenue, as well as increased state spending.

Commenting on the news, Lukman Otunuga, Research Analyst for FXTM said, “An undeniable feeling of disappointment lingered across Nigerian markets on Tuesday following reports of the nation’s first quarter GDP growth of 2017 contracting by 0.52% year-on-year.

“Although this economic contraction may weigh heavily on sentiment moving forward, it should be kept in mind that it still remains the best performance seen in four quarters. With many sectors of the Nigerian economy turning positive, the overall outlook still looks encouraging with the bullish impacts likely to be realized in the second and third quarter of this year”.

He said that the Central Bank of Nigeria has made the logical decision to maintain key interest rates at 14% as the nation stabilizes and continues its ongoing quest to diversify beyond relying on oil exports.

“With Nigeria’s GDP for the first quarter of 2017 still in recessionary territory, the damage of depreciating oil prices still lingers on with social economic issues, soft domestic data and inflation exposing the nation to downside risks,” he said.

On inflation Otunuga said, “Although inflation has displayed subtle signs of stability this year, and April’s Purchasing Managers Index has highlighted a rebound in the business activity, there will be an increasing focus on GDP growth.

“Parliament has already approved a 21% budget hike to boost the economy while the central bank is tackling foreign exchange woes which should support the nation in the longer term. I believe that the hardship and pressure Nigeria continues to face may aid its evolution, with an end result that may shock the global arena”.

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