Q2 2018 GDP Report – The Baton Changes Hands

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The Baton Changes Hands

·         The recently released Q2 2018 GDP report by the National Bureau of Statistics (NBS) showed that the economy expanded by 1.50% year-on-year (y/y) in real terms. The growth was 45 basis points (bps) slower than that of the preceding quarter but faster than Q2 2017 (0.72%). In contrast to growth in the last four quarters, GDP growth in Q2 2018 was largely driven by the non-oil sector, which expanded by 2.05% y/y (contributing 91.45% to total GDP) while the oil sector contracted by 3.95% y/y.  

Oil Sector Backtracks

·         The slight drop in real GDP growth rate in Q2 2018 was principally as a result of the contraction in the oil sector, which contributed 8.55% to real GDP in Q2 2018, down from 9.61% in Q1 2018. We highlight that the decline in the oil sector was partly due to lower oil production levels with output averaging 1.84 million barrels per day (mbpd) in Q2 2018, against 1.87mbpd in Q2 2017 and 2.00mbpd in Q1 2018.

·         The decrease in production could be the result of the closure of the Trans-Forcados terminal and Force Majeure on Bonny Light exports for most of Q2 2018. In addition, we suspect that lower natural gas production may also have been a contributing factor.

·         While Brent oil prices were higher by 40% y/y, averaging US$75per barrel in Q2 2018, we point out that real GDP is based on constant prices and does not take into consideration changes in price levels.

·         Furthermore, with oil sector growth being weighed down by the high base effect of H2 2017, we could also see growth in the oil sector slow if not contract in H2 2018.

Budget Implementation is Pivotal

·         Overall, with growth in the Information & Communication sector being volatile over the last six quarters, we are concerned on the sustainability of the output in the non-oil sector with the activities in the three major sectors (Agriculture, Trade and Manufacturing) remaining weak.

·         As such, hopes for improved GDP growth in H2 2018 rest largely on increased government spending on the back of the expected acceleration of the recently passed N9.12trillion 2018 budget as well as election spending. This could be supportive of consumer demand and activities in the Trade and Manufacturing sectors while government intervention in conflict stricken regions of the country could be key to improved output in the Agriculture sector. 

·         Nonetheless, the possibility of GDP growth matching our 2.5% projection at the start of 2018, as well as the International Monetary Fund and World Banks revised outlook of 2.1% seems unlikely.