Non-oil GDP - winners and losers
Compared to recent GDP readings in select countries, Nigeria's Q1'20 reading was considerably impressive. This relative outperformance likely reflected the peculiarities of domestic output composition and the timing of containment measures at the tail end of the quarter. Despite the peculiarities, a review of time series and cross-sectional data still illuminated an interesting change in the structure of non-oil growth in Q1'20. Specifically, Q1'20 numbers indicated that the level of growth support from agric and services (largest contributors to non-oil GDP) waned compared to Q4'20 . While the drivers of agric slowdown have already been highlighted, we note that services moderation may have been closely linked to the slowdown in subscriber growth reported in January and February, reduced reselling activities due to border closures, and naira adjustments. On a positive note, the non-oil space received strong support from financial services, which accelerated at a fast pace for the second consecutive quarter (Q1'20: +24.0% YoY; Q4'19: +22.3% YoY). The traction in financial services continued to reflect sustained efforts by the CBN to expand loan growth.
GDP slowdown may be a prelude of what is to come
After the Q1'20 growth, we envisage consecutive quarters of economic contraction in Q2'20 and Q3'20 as containment measures weigh on both oil and non-oil sectors. To us, signs of weaknesses are already evident in several non-oil components, with concerns around manufacturing, trade, professional & admin services, and education clearly exposed in the new GDP numbers. An anticipated slowdown in consumption, which accounts for c.76.6% of GDP, is also likely to adversely impact trade and a plethora of services components. Elsewhere, prolonged oil price weakness, high cost of domestic production (c.$27.00/bbl), and unsold cargoes may force oil production lower in Q2'20. Our expectation of lower oil production in 2020, against a relatively high base in 2019, suggests that there could be contractions in oil GDP in the coming quarters. .
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