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GDP at 3.19% not yet Uhuru

Good News! Nigeria’s GDP Growth for Q2’24 Hits 3.19% Year-on-Year—But Should We Celebrate?

At first glance, the 3.19% year-on-year GDP growth in Q2 2024 seems like a cause for celebration, especially when compared to the 2.51% growth in Q2 2023. However, a closer look at the underlying factors suggests caution before getting too excited.

In Q2 2023, the economy faced several challenges, including low liquidity due to the Naira redesign, the lingering effects of the currency change on point-of-sale (POS) transactions, ongoing tribunal petitions, and political uncertainties surrounding President Tinubu’s swearing-in. During this period, key economic indicators reflected the strain: the average Purchasing Managers’ Index (PMI) was 46.33, inflation stood at 22.6%, and interest rates hovered around 18.7%. The exchange rate was relatively stable at N460/$, and foreign direct investment (FDI) averaged approximately $86.02 million.

In that same quarter, 14 sectors of the economy expanded, 24 experienced a slowdown, and 8 contracted. Notably, sectors such as crop production, metal ores, quarrying, electricity, accommodation and food services, rail transport and pipelines, water transport, telecoms, broadcasting, arts, financial institutions, insurance, public administration, and education showed positive growth.

Fast forward to Q2 2024, and the economic landscape has shifted. While the GDP growth appears stronger, it’s essential to consider the context. Economic growth driven by increased supply must be matched by corresponding demand, which in turn depends on consumers’ spending power. In Q2 2023, cash scarcity significantly limited consumer spending. In contrast, in Q2 2024, consumers have more cash on hand, but they face new challenges: petrol prices have surged, the exchange rate has plummeted to N1,500/$, and inflation has skyrocketed to 33.40%. The average PMI in Q2 2024 rose to 51.06, and interest rates climbed to 26.25%.

In a predominantly retail-driven economy, it’s unusual to see both business activity and other sectors contracting simultaneously with a substantial increase in GDP output. These conflicting signals suggest that the GDP growth is not as widespread as it might appear and raise questions about the sustainability of this growth.

Despite the stronger-than-expected GDP increase of 3.19% in Q2’24, up from 2.98% in Q1’24, the outlook for Q3 2024 remains cautiously optimistic.

In other words, it is too soon to bring out the champagne glasses.

In the link below, the FDC Think Tank analyses the GDP numbers for Q2’24 and its implications

Do enjoy your read!