2017 Gross Domestic Product …An Economy on the Path to Recovery

The National Bureau of Statistics released the Q1:2017 GDP report during the week with estimates showing that the economy contracted for the fifth consecutive quarter, albeit at a slower pace than previous quarters. The report showed that economic output contracted 0.5% Y-o-Y in Q1:2017 (better than -0.7% in Q1:2016 and -1.7% in Q4:2016). We present further analysis of the report below.

The oil sector contracted for the sixth consecutive quarter despite the slight improvement in oil production between Q1: 2017 and Q4:2016. On a Y-o-Y basis, the oil sector contracted 11.6% as oil production in Q1:2017 (1.83mb/d) was lower than Q1:2016 (2.05mb/d). However on a Q-o-Q basis, the oil sector grew 14.9% as oil Production improved in Q1:2017 from 1.76mb/d in Q4:2016. This was unsurprising given the relative peace which has been restored to the Niger Delta region after various attacks which hampered production in 2016. We believe that if the current trend is sustained, expansion in the oil sector should be recorded in subsequent quarters. On the other hand, Non-Oil GDP expanded in Q1:2017 on the back of sustained growth in the Agricultural Sector as well as expansion in Information & Communication, Manufacturing, Transportation and Other Services. Accordingly, the non-oil sector grew by 0.7% Y-o-Y which was 0.9% higher than Q1:2016 and 1.1% higher than Q4:2016.

Analysis of the sectoral breakdown showed that the positive growth trend in the Agricultural sector was sustained, expanding 3.4% Y-o-Y in Q1:2017, although lower than 4.1% in the preceding quarter. On the other hand, the Industrial sector contracted 4.2% Y-o-Y in Q1:2017, yet an improvement from 6.7% and 8.9% contractions in Q1 & Q4:2016 respectively. Furthermore, the advancement in the Industrial sector is broadly due to growth in the manufacturing sector which expanded 1.4% Y-o-Y in Q1:2017 (first expansion since Q4:2015) as some of the FX challenges which had hitherto hampered activity in the sector, softened. The services sector also contracted 0.4% Y-o-Y in Q1:2017 but was better than -0.8% in Q4.2016.

In our view, despite the fact that the Q1:2017 GDP numbers suggest that the economy is still in a recession, we remain more optimistic on the performance of the economy in 2017 relative to 2016. Our optimism is hinged on the improvement in oil production volumes as well as higher oil prices given the lower base of 2016. In addition, we believe that if the current improvements in FX liquidity in the financial system is sustained, the manufacturing sector should continue on the uptrend as PMI date for April which showed the index at 51.1points, indicates the general improvement in the sector. Accordingly, we forecast that the economy will rebound from recession in Q2:2017. Our forecast is based on the expectation of an expansion in the Industrial Sector which will be driven by an uptick in oil production (+12.0% to 2.1mb/d in Q2:2017) as well as a stronger performance from the manufacturing sector especially if the current drive to improve FX liquidity by the CBN is maintained followed by an expected 2.7% Y-o-Y expansion in the Services sector.  Consequently, we project a growth 0.7% Y-o-Y in Q2:2017.