Sixteen economic sectors of the Nigerian economy expanded at the end of the second quarter of (Q2) 2023, resulting in a real growth of 2.51 percent, while 22 sectors slowed and 8 sectors contracted. This signified a marginal improvement when compared to the 2.31 percent real growth rate recorded at the end of the Q1 of this year, when only 12 economic sectors expanded, 22 slowed while 12 contracted according to the analysis of one of Nigeria’s leading think-tank cum investment houses, the Financial Derivatives Company (FDC).
The Q2 growth rate is not enough to allay fears of Nigerians as a year-on-year comparison, the half-year 2023 growth rate still fell short of the 3.54 percent real growth recorded as at the end of the second quarter of 2022.
Announcing the quarterly economic data last week, the National Bureau of Statistics (NBS), the nation’s data agency, attributed the marginal growth to the positive developments in the services sector.
“The performance of the GDP in the second quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 4.42% and contributed 58.42% to the aggregate GDP,” NBS announced last week.
In Q2’ 2023, agriculture contributed 23.01 percent while industries contributed 18.56 percent.
The sectors that expanded at the end of the Q2 of this year, even with double digits growth rates include metal ores, quarrying and other minerals, financial institutions, rail transport and pipelines, and telecoms.
Others that expanded by single digit growth rate during the same period include insurance, chemical and pharmaceuticals, broadcasting, water transportation, air transportation, food, beverage and tobacco, and cement, among others.
The sectors that slowed include construction, trade, manufacturing, real estate, road transportation, oil refining, coal mining, and crude petroleum and natural gas.
A major challenge with the contracted sectors, according to FDC, is that they have the potential to generate huge employment opportunities while the sectors that expanded are not high job creating sectors.
Analysts at FDC posited: “Most of the activities in this category are employment intensive, primarily affected by currency weaknesses, low consumer purchasing power, and heightened insecurity.
“More worrisome is that most of the expanding sectors are not employment intensive and will have a limited impact on unemployment that reduced to 4.1% in Q1 ’23 from 5.3% in Q4’22. This trend is likely to reverse as aggregate demand falls and firms begin to rationalize headcount to reduce operational costs.”
Analysts well familiar with the dynamics of the Nigerian economy are suggesting they are not expecting any miracle in the third quarter of the year. This they hinge on economic rigidities, hawkish stance of the Central Bank of Nigeria as it sets to further tame the ravaging inflationary pressures, as well as the impact of the recent reforms of the federal government which are already having impact on households and firms, which will soon affect the nation’s aggregate demand.
Analysts at Futureview Financial Service said with Nigeria’s GDP still less than population growth rate of 2.4 percent, no meaningful progress will be made unless the nation’s real growth surpasses this.
“With GDP growth below the population growth rate of 2.4%, analysts stress the need to address short-term rigidities affecting prices, disposable income, and growth. The economy is expected to feel the lingering effects of fuel subsidy removal and Naira devaluation throughout H2 2023. While the IMF predicts 3.2% growth for FY2023, Analysts project sub-3% growth,” Futureview stated.
Nigeria currently battles with a high inflation rate of 24.08 percent, naira-dollar exchange rate of about N950, high debt burden but with a low unemployment rate of 4.1 percent.
“We expect real GDP growth to decline further to 2.15% in Q3’23 due to the short-term impact of policy changes on aggregate demand. The deceleration in GDP growth, combined with the surge in inflation to 24.08% in July, will be major considerations at the monetary policy committee meeting in September. Notwithstanding the slowdown in GDP growth, we expect the committee to maintain its aggressive monetary policy stance,” FDC posited, as projection for the third quarter of 2023.