FDC ECONOMIC BULLETIN – AUGUST 26, 2021 (Re: GDP great numbers but limited impact as base year effects mask vulnerabilities)

Dear Subscriber,

The Q2 GDP report was released today as scheduled. The numbers surpassed analysts expectations, climbing by 11.11% to 5.01% compared to the negative growth of -6.1% in the corresponding period in 2020. The surge in real GDP growth was largely due to base year effects. In Q2’20, there was an unprecedented lockdown. Domestic and international flights were shut, intercity travels were restricted and markets were closed.

Interestingly, the release of the Q2 GDP data coincided with the rebasing of the South African economy, the second largest in SSA. The GDP size increased by 11% to $369bn, bringing it neck and neck with Nigeria.

Strategic investment in productive sectors critical for sustained recovery

The average growth in H1’21 is now 2.70%. This implies that the Nigerian economy will need to grow at an average of 2.5% in the second half of the year to achieve the target growth of 2.5%-3.0% for 2021. While this seems possible, it will be a tall order when the level of activity is compared with Q3’20 – the period when re-opening and relaxation started and the Economic Sustainability Plan (ESP) and palliative stimulants were in play.

To sustain the current positive growth trajectory, the economy is in need of strategic investments and increased stimulus in the job elastic sectors while reducing leakages emanating from misaligned exchange rates and subsidies. According to Okun’s law, real GDP must grow 2% faster than the growth of potential GDP to achieve a 1% decline in unemployment. A major threat to the these projections is the new wave of COVID-19.

MPC likely to cut the MPR by 50bps in September

The moderation in inflation which is now 17.38% and the spike in GDP growth to 5.01% increases the probability of a cut of 50basis points to 11.0%p.a. at the September meeting.

In the download below, the FDC Think-Tank analyzes the GDP numbers for Q2 and its implications.

Do enjoy your read…