November 16, 2022/United Capital Research
Last week, the National Bureau of Statistics (NBS) released the Q2-2022 Gross Domestic Product (GDP) report calculated via the Expenditure and Income approach. According to the data, economic growth expanded by 3.5% y/y in Q2-2022 compared to 3.1% growth recorded in Q1-2022. The household consumption expenditure component was the major driver of the growth, accounting for 65.9% of the total GDP. Other components, Investment and Imports, recorded y/y growth, while Government expenditure and Exports declined on a y/y basis.
Taking a dive into the components revealed that Household consumption expenditure grew by 17.6% y/y to N13.8tn in Q2-2022 compared to N11.7tn in Q2-2021 and 2.3% q/q from N13.5tn in Q1-2022. The increase in household consumption comes despite rising inflationary pressures in the country as the cost of household items (food, clothing, education, etc.) remains on a steady rise. We believe support from improved access to consumer credit in Nigeria has provided support for household consumption. For Investment, gross capital formation rose by 4.5% y/y to N2.5tn as CBN’s extension of its interventions to critical sectors of the economy helped sustain business investments, particularly via inventories acquisition. On Government expenditure, we observed a contraction of 13.0% y/y printing at N931.2bn compared to N1.1tn in Q2-2021. This largely reflects the FG’s lack of fiscal capacity to sustain economic stimulating expenditure as the bulk of government revenue was spent on debt servicing (c. 96.1% as of Aug-2022). Lastly, net exports recorded a contraction of 92.8% y/y to print at N116.1bn from N1.6tn in Q2-2021 due to dwindling export value (-30.5% y/y deterioration) and increased pressures on import value (56.9% y/y expansion). Declining oil export receipts was the primary cause of the declining in export value while import value surged in the face of elevated global inflation and rising consumer demand.
Overall, we maintain our optimism that the Nigerian economy will continue to ride on this positive momentum. We believe household consumption expenditure, the largest component of the GDP will continue to climb higher on the back of good access to consumer credit. That said, our in-house forecast is that GDP will print at 3.9% in FY-2022.
