September 4, 2019/Cordros Report

Economic performance was weaker than expected in the second quarter of 2019, with the recently released Q2-19 GDP data showing that the economy grew by 1.94% y/y (vs. an upwardly revised 2.10% y/y in Q1-19). Dissecting the numbers, we highlight that the Oil sector (+5.15% y/y vs. -1.46% y/y in Q1-19) rebounded after five consecutive quarterly declines. However, overall growth was weighed down by slower growth in the Non-Oil sector (+1.64% y/y vs. 2.47% y/y in Q1-19).

Base effect underpins rebound in Oil GDP

In line with our mid-year outlook that there would be a rebound in Oil GDP in Q2, after five consecutive quarters of declines, the Oil GDP widened by 5.15% y/y (vs. -1.46% y/y in Q1-19).

Disappointing non-oil performance

The Non-Oil sector grew slower by 1.64% y/y (vs. 2.47% y/y in Q1-19), representing the slowest growth in five quarters. Dissecting the numbers, we discovered mixed performances across sector components, with Industries (+2.10% y/y) leading the pack, closely followed by the Services (+1.94% y/y) and Agriculture (+1.79% y/y) sectors.

Modest growth outlook with less optimism

We expect sustained growth in the Oil sector in Q3-19, albeit at a slower pace than in Q2. We forecast oil production of 1.98 mb/d, reflecting 2.06% y/y growth. This is hinged on absence of any militancy, reduced pipeline vandalism, and the expectation of absence of major terminal shutdowns. Overall, we expect the Oil GDP growth of 2.06% in Q3-19. 

Similarly, we expect growth in the Non-Oil sector to also be sustained and rise by 2.17% y/y in Q3. The net impact of the changes to our model is a downward revision in our Q3-19 and 2019FY GDP growth forecasts to 2.11% y/y and 2.02%, respectively.

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