Home Business 2021 Mid-Year Outlook: Cordros forecasts Nigeria’s real GDP to grow 2.63% y/y...

2021 Mid-Year Outlook: Cordros forecasts Nigeria’s real GDP to grow 2.63% y/y in 2021, non-oil sector to provide impetus for sustained recovery


By Audrey Lotechukwu

TUE 29 JUNE, 2021-theGBJournal- Cordros Research analysts said they expect Nigeria’s economy to remain on the path of growth over the rest of 2021, following two quarters of positive albeit sub 1.0% growth levels.

‘’Accordingly, we forecast a 2.63% y/y real GDP growth in 2021E (2020FY: -1.92% y/y), supported by broad-based expansion across the oil and non-oil sectors,’’ Cordros said.

The research analyst said the preceding is based on their expectation of no further lockdown of the economy while the full reopening continues to support domestic demand.

The forecast is contained in their mid-year outlook of the domestic economy published today, in which they assessed the performance of various sectors of the economy since the beginning of the year.

Nigeria’s economy grew by 0.51% y/y in Q1-21 (Q4-20: 0.11% y/y and Q1-20: 1.87% y/y) as the non-oil sector continued to drive the overall economic performance amid a slower decline in the oil sector.

The oil sector declined by 2.21% y/y (Q4-20: -19.76% y/y) while the non-oil sector grew slower by 0.79% y/y (Q4- 20: +1.69% y/y).

Although the outturn underperformed Cordros’ estimate of 0.94% y/y by 43bps, the growth, albeit fragile, consolidated the recovery that kicked off in Q4-20.

‘’Our attribution analysis shows that the GDP growth in the quarter was primarily driven by Agriculture and Industries, which contributed 0.50% and 0.22%, respectively. The growth in both sectors helped to neuter the negative contribution of the Services (-0.21%) sector to the GDP growth rate,’’ Cordros noted.

Meanwhile, Cordros predicts that the increase in oil production and oil prices will also have a positive ripple effect on the other sectors of the economy, given the country’s heavy reliance on the external sector.

‘’The low base effects, improved activities in the contact-facing sectors and recovery in the oil sector will sustain the recovery that kicked off in the last quarter of the prior year, Cordros said.

Despite persistent security challenges in food producing states, they expect headline inflation to moderate in H2-21 driven primarily by the high base effect.

In addition, they see scope for improvement in liquidity conditions in the FX market given the knock-on effects of the rally in oil prices and the proposed Eurobond issuance on the FX reserves.

‘’We believe this will put the apex bank better positioned to step up its intervention across the various segment of the FX windows.’’

On monetary policy, they say the body language of the MPC in the three meetings held so far this year suggests that its short-term objective is to support economic recovery despite the stubbornly high inflation and imbalances in the external sector.

‘’Consequently, we do not see the Committee tweaking any monetary policy parameters at its July and September meetings. However, we envisage a 50bps hike in the MPR at the November meeting as the MPC shifts to a tightening phase.’’

According to the research analysts, no significant divergence from historical trends in the spending pattern of the government is envisaged.

‘’We believe a substantial revenue generated will be directed towards recurrent expenditure and debt servicing, while capital expenditure will be financed mainly by borrowings.’’

However, they are slightly positive on non-oil revenue given the sustained implementation of the 50% increase in VAT that commenced last year, improvement in tax administration framework and the pass-through impact of the rebound in economic activities on non-oil revenue items.

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