December 14, 2018/InvestmentOne Report
Please click to view our Q3 2018 GDP Report: Non-Oil Sector Sustains Growth
· The recently released Q3 2018 GDP report by the National Bureau of Statistics (NBS) showed that the economy expanded by 1.81% year-on-year (y/y) in real terms.
· Similar to growth in the last quarter, GDP growth in Q3 2018 was largely driven by the non-oil sector, which expanded by 2.32% y/y (contributing 90.62% to total GDP) while the output of the oil sector continued to fall with a negative growth of 2.91% y/y.
· The oil sector output continued to fall (-2.91%y/y) though at a slower pace when compared to Q2 2018 when it fell by 3.95% y/y. We highlight that the decline in the oil sector was due to lower oil production levels with output averaging 1.94 million barrels per day (mbpd) in Q3 2018, against 2.02mbpd in Q3 2017 and 1.84mbpd in Q2 2018.
· Non-oil sector continued to support the overall GDP as it grew by 2.32% y/y in Q3 2018. This was driven by the 2.64% y/y improvement in Services sector output (48.79% of Q3 2018 GDP); its strongest positive growth since 2016.
· The Agriculture sector (29.25% of GDP) output expanded faster, growing by 1.91% y/y in Q3 2018, against 1.19% y/y in Q2 2018 but slower than the growth of 3.06% y/y Q3 2017. We believe the quarter on quarter improvement in agricultural output could be as a result of the beginning of harvest season which usually starts in Q3 through Q4.
· There was a fall in Industrial output (21.97% of Q3 2018 GDP); the sector contracted by 0.11% y/y in Q3 2018 compared to a growth of 0.40% y/y and 7.74% y/y in Q2 2018 and Q3 2017 respectively. This was the first time in the last seven quarters that the sector would record a negative growth.
· However, Construction activities slowed down in Q3 2018 as it grew by only 0.54% in Q3 2018 compared to the growth of 7.66% y/y in Q2 2018 but stronger than the growth of –0.46% y/y in Q3 2017. Nonetheless, we expect construction activities to pick up in Q4 2018 following the expectation of higher demand for Cement which should feed in to the construction output in the last quarter of the year.
· Overall, with growth in the Information & Communication sector being volatile over the last seven quarters, we are concerned on the sustainability of 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 Q4 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 revised 2.0% projection for 2018, as well as the International Monetary Fund and World Bank’s revised outlook of 1.9% and 2.1% seems unlikely.