Dear Subscriber,

The NBS released its Q2 GDP data today as scheduled. Surprisingly, real GDP growth came in much higher than most analysts had expected (3.54%). This is 0.43% higher than what it was in Q1’22 (3.11%). Even though one data point is not a trend, it shows that the economy could be on a mend. Also, a spike in Nigerian GDP at a time when global economy is faltering would bode well for investors and creditors.

While there is enough reason to cheer, it also calls for a moment of sober reflection. Of the 46 activities tracked by the NBS, only 33% expanded compared to 54% in Q1’22. Most of the sectors that slowed or contracted (manufacturing, agriculture, etc) are the major employers of labour. Hence, there will be a limited impact on unemployment, which is stubbornly high at 33%.

Is Panic buying creating illusion of expansion?

The purchasing Managers Index, which is one of the most efficient predictors of cyclical trends, has been oscillating in the last 7 months. An interesting observation is that new orders increased consistently in the last 5 months. This raises questions as to whether manufacturers are optimistic about the future or they are hedging against a falling naira. The fear of dollar scarcity means manufacturers will front load their inventory requirements, creating an illusion of expansion as against the real picture. This will manifest in a possible decline in purchases and ultimately slow GDP growth in the coming quarter.

We expect that the monetary policy committee (MPC) will most likely leave all monetary parameters unchanged and continue to monitor the impact of previous rate hikes on the economy.

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

Enjoy your read…