March 9, 2018/InvestmentOne Report
Recently released Q4 2017 GDP report by the Nigerian Bureau of Statistics (NBS) showed a stronger than expected growth in the non-oil sector.
The country’s GDP expanded by 1.92% year-on-year (y/y) in Q4 2017, pushing full year (FY) 2017 growth to 0.83% y/y, following a -1.58% y/y contraction in FY 2016. Although this was fairly in line with the International Monetary Fund’s expectation (0.80% y/y in FY 2017) it was slightly below our estimate (1.00% in FY 2017).
Overall, the Q4 2017 GDP report may have been reflective of a rebound in consumer sentiments.
In our view, this may have contributed to the more inclusive growth in GDP witness in Q4 2017, compared to previous quarters in 2017.
The growth in the non-oil sector, if sustained could be supportive of the nation’s GDP performance as the benefits of the weak base effect of H1 2017 fade in H2 2018 and 2019.
It could also be a positive for the administration’s drive to boost tax revenue to GDP ratio above c.6% currently, towards 10-15%.
.Also, we highlight that the stronger growth in economic activities further backs our belief that we should see a lower interest rate environment in 2018, which could be supportive of output in the non-oil sector.
The improvements in the Agriculture sector, which could be a positive for domestic food prices, and a further moderation in headline inflation (15.13% y/y in January 2018) could also support CBNâs move to a more accommodative monetary policy.
Furthermore, the potential increase in the national minimum wage to N56,000 in H2 2018, from N18,000 currently, could be a positive for consumer demand and consequently growth in the Manufacturing and Trade sectors.
With this said, further strengthen of the non-oil sector, particularly Manufacturing and Trade sectors, could lead to an increase in FX demands for importation, which could pressure the CBNs current FX policy.
Nonetheless, we highlight that normalization of monetary policies in the USA, UK and European Union, increasing political risk ahead of the 2019 elections as well as the potential for instability in the Niger Delta pose a downside risk to our outlook.
We forecast the nations GDP to grow by c.2.5% in 2018.