November 22, 2019/Cordros Report

In line with our expectation, economic growth strengthened in the third quarter of 2019, with the recently released GDP reading showing that economic activities expanded by 2.28% y/y (vs. an upwardly revised 2.12% y/y in Q2-19). The outturn is 17bps shy of our estimate of 2.11%, with the variance stemming from sharper than expected growth in Oil GDP. Sifting through the breakdown provided, we highlight that the improved reading emanated from faster growth in the non-oil sector (+1.85% y/y vs. +1.64% in Q2-19), while the oil sector printed a slower growth of +6.49% y/y (vs. 7.17% y/y in Q2-19).

Oil Production hits 3-year high – Faced with a high base in the corresponding period of last year, we had expected Oil GDP to slow markedly in Q3-19. However, Oil production surprised positively, touching its highest level in 15 quarters (+5.14% y/y to 2.04mb/d), to set the stage for a 6.39% y/y growth in Oil GDP. To our mind, the unprecedented crude production mainly stemmed from the rapid pace of condensate production, given the country’s continued commitment towards complying with OPEC output cut agreement. For the sake of evidence, OPEC data showed that Nigeria’s crude production ex-condensate declined marginally 0.73% to 1.77mb/d in the same period. Thus, relative to Q3-18, we estimate that condensate production expanded by 8.3% y/y in Q3-19. This, we believe, was mostly from Egina deep water oil field

Non-oil sector rediscovered lost aura – As stated earlier, the non-oil sector expanded by 1.85%, emanating from faster increases recorded across board, save for Trade which slipped into recession  following two consecutive quarterly contractions. For clarity, the service GDP expanded by 3.45% y/y – the highest growth since Q4-18 – on account of strong growth in information & communication (+9.88% y/y), transport & storage (18.24% y/y), and a rebound in finance & insurance (+1.07%). Elsewhere, despite reported cases of flood, the Agriculture sector firmed up by 2.28% y/y, reflecting strong growth in crop production (+2.41% y/y). That said, activities within the manufacturing sector (+1.23% y/y) turned positive, from a negative terrain in prior quarter, mirroring strong PMI readings which expanded in the period under review.

We expect the economy to grow by 2.36% in Q4 2019 – To start, we expect sustained growth in the Oil sector in Q4-19, mostly on account of the low base in the corresponding quarter in the prior year, as well as an improved crude production. On the latter, we revise our oil production forecast to 2.03 mb/d from 1.98 mb/d, which translates to a 6.28% y/y growth in oil GDP. Elsewhere, we expect higher growth in the Service and Agriculture sectors to support non-oil GDP growth of 2.06% y/y. Overall, we expect growth to settle at 2.36% y/y and 2.21% in Q4-19 and 2019FY, respectively.

Source: NBS, Cordros Research