Dear Subscriber,

Nigeria’s macroeconomic pre-condition of slow productivity and shallow gross capital formation is catching up with it, prior to the Covid induced economic paralysis. Its growth in Q1, typically a period of seasonal sluggishness was a mere 1.87%. When compared to the corresponding period in 2019, it shows a modest decline but when put in the trend line in comparison to the last quarter, the slide becomes more obvious (-0.68%). It also sets the stage for a precipitous crash in growth in Q2, which is estimated by some analysts to be as much as -3.5%.

If growth slides further to below 0%, it would mean that Nigeria may be caught in a stagflation trap. The Q1 numbers show once again that the Nigerian economy was salvaged by growth in the oil sector (5.06%)courtesy of OPEC quota bursting. This will become more evident with the 42% fall in oil price and strict enforcement of the OPEC quota. The limitations of monetary policy tools in solving fiscal problems are now transparently evident.

The MPC at its meeting tomorrow will be influenced by the growth numbers, but will be more worried about the exchange rate induced inflation of 12.34%.  Even though lowering interest rates will help growth, the MPC is likely to maintain status quo in view of the many uncertainties.

In this publication, the FDC Think-Tank analyzes the GDP numbers for Q1 and its implications.

Do enjoy your read…