CEM REPORT, ECONOMY | As Nigeria’s economy slipped from 3.4 per cent y-o-y in Q2, 2022 to 2.3 per cent y-o-y in Q3, 2022, experts have predicted that the decline will continue till 2024.
A recently released report predicts that due to activities leading to the general elections next year economic decline will continue over the next two quarters of 2023.
The report by Fitch Solutions Country Risk & Industry Research recalled the latest figures from the National Bureau of Statistics (NBS) which it said showed that economic growth slowed from 3.4 per cent y-o-y in Q2, 2022 to 2.3 per cent y-o-y in Q3, 2022, noting that economic growth in Nigeria slipped to a six-quarter low of 2.3 percent in quarter four of 2022.
However the report states that it expects the nation’s economy to pick up after the elections.
“Economic growth in Nigeria slipped to a six-quarter low in Q3, 2022, and we expect that it will continue to slow over the coming two quarters.
“We expect that the country’s economy will expand by just 2.5 per cent due to disruptions associated with the February 2023 election and the continued decline of oil production. Growth will accelerate to 3.3 per cent in 2024 as oil output picks up.”
The Fitch Ratings affiliate in its reported projection for Nigeria’s economy explained that the slowdown in the economy was mostly due to a poor performance in the oil sector, where the decline in output worsened from a fall of 11.1 per cent y-o-y in Q2, 2022 to a decrease of 22.3 per cent y-o-y in Q3, 2022.
Furthermore Fitch identified two key reasons for this continued slowdown – declining oil sector and the 2023 elections.
The oil sector, which has been a key drag on growth in recent years will continue to struggle in 2023. It stated that unplanned outages at onshore production facilities, a deteriorating security situation, and the lagged effect of years of underinvestment continue to plague the sector.
“At Fitch Solutions, our oil and gas team estimate that Nigerian crude oil production will fall by 15.2 per cent in 2022 and by another 14.9 per cent in 2023.”
It however noted that increased offshore oil production, which will help to offset problems in the onshore sector.
“In 2024, however, we expect that production will essentially stabilise,” Fitch said.
While output would remain far below the levels recorded before 2020, the end of this decline, the report posited, will remove a key headwind affecting headline Gross Domestic Product (GDP) growth.
“Indeed, this is the key reason why we expect that growth will pick up from 2.5 per cent in 2023 to 3.3 per cent in 2024.”
On a second note, Fitch said it expects that disruptions associated with the February 2023 general election will create another headwind.
“Campaigning will prevent some economic activity, while government policymaking will essentially shut down,” it predicted.
Drawing from data from the past, the research organisation stated that in 2015 and 2019, year-on-year growth in the quarter containing a general election was, on average, 1.1 percent points weaker than in the preceding quarter.
While trend growth will be slower heading into the 2023 general elections, Fitch noted that it still expects that growth will slow from 2.0 per cent in Q4, 2022 to 1.5 per cent in Q1, 2023.
“The hit to economic activity would, of course, be much larger if the election sparks large-scale protests or violence.”
Recall that CEM had predicted continuous shrink in the economy following rising inflation and continued tightening of monetary policy rate. As interest rate continue to rise, production activities will continue to slow down.
Effort to tackle the cause if rising inflation should be intensified. Kidnapping and killings in farming communities must be tackled headlong to enable agricultural production expand.
Energy should be treated as emergency to curb high cost of production.
High exchange rate of the Naira is responsible for high cost of imported raw material and finished products.
If these are adequately addressed coupled with improved oil production, inflation will subside and the economy will grow
