Nigeria’s economy contracted the most in at least a decade in the second quarter as the crash in oil prices and the global fallout from Covid-19 hit output.
Gross domestic product shrank 6.1% in the three months through June from a year earlier, compared with growth of 1.87% in the previous quarter, the Abuja-based National Bureau of Statistics said on its website on Monday. The median estimate of six economists in a Bloomberg survey was for a 4.05% drop in output. Quarter on quarter, real GDP decreased by 5.04%.
Oil production fell to 1.81 million barrels a day from 2.07 million barrels in the previous three months. That’s the lowest since the first quarter of 2017, which was the last time Africa’s largest economy contracted.
Crude contributes less than 10% to Nigeria’s GDP, but it accounts for about 90% of foreign-exchange earnings and half of government’s revenue. That means the plunge in oil prices in the wake of the coronavirus pandemic, which hit as the economy’s recovery from a 2016 slump was still gaining traction, have emptied coffers
Still, the drop in output was wider than just crude. The oil sector contracted by 6.6% from year earlier and the non-oil sector shrank by 6.05%, the first decline in non-oil GDP since the third quarter of 2017.
“The decline was largely attributable to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the Covid-19 pandemic,” the statistics office said.
The outlook for the economy remains fragile. The International Monetary Fund sees Nigerian GDP shrinking 5.4% this year, its biggest contraction in nearly 40 years.
“Macro headwinds -- depressed oil prices, a slow pickup in global trade, a strong dollar supported by the Fed -- along with local structural inefficiencies, will continue to batter the Nigerian economy,” Ikemesit Effiong, head of research at Lagos-based SBM Intelligence, said before the release.
What Bloomberg’s Economist Says
“We expect the economy to contract again in 3Q, but at a slower rate than 2Q. The above target oil production in April-June, though, mean steeper production cuts will be required in August and September in order to reach full OPEC compliance. At the same time, a weaker naira and ongoing foreign-exchange restrictions will continue to weigh on growth in the non-oil sector.”