Global rating agency Fitch projects 1.6% GDP growth for Nigeria in 2021
The Nigerian economy will grow by 1.6 percent in 2021 against the 2.3 percent earlier projections, the global rating agency Fitch Ratings has predicted.
In a report, Fitch hinged its prediction on weaker base effects coming out of a shallower contraction recorded by the country in 2020.
The National Bureau of Statistics (NBS) in its Gross Domestic Product (GDP) report put Nigeria’s economic growth at 0.11 percent for the last quarter of 2020 and overall contraction for the year at -1.9 percent.
The global rating agency stated that rising oil exports would be the main growth driver for the country’s economy in 2021, while consumer spending and business investment were likely to be subdued because of persistently high inflation and the slow rollout of a Covid-19 vaccine.
The agency, however, estimated that growth in Nigeria would accelerate to 2.7 percent in 2022, while it “expects Nigeria’s vaccination programme to gather pace, which will result in private consumption and fixed investment accelerating.”
“We at Fitch Solutions have revised our estimate for Nigeria’s real Gross Domestic Product (GDP) to a contraction of 1.9 percent in 2020, compared to our previous estimate of a 3.2 percent fall.
“The revision follows the release of stronger than expected GDP data indicating that the economy exited recession in the fourth quarter of 2020, growing by 0.1 percent year-on-year, after contracting by 3.6 percent in the third quarter of 2020 and by 6.1 percent in the second quarter of 2020.
“The agriculture and services sectors led the Q4 2020 rebound, expanding by 3.4 percent and 1.3 percent respectively, resulting in non-oil growth rising by 1.7 percent compared to a 2.5 percent fall in Q3 2020. The oil sector (around 8.0% of GDP) contracted by 19.8 percent in Q4 2020 – its third consecutive quarterly contraction – because of falling oil production and weak prices.
“Crude production slowed to 1.56 million barrels per day (b/d) in Q4 2020 from 1.67 million b/d in Q3 2020, partly because of Nigeria’s commitments under the OPEC+ deal, while the price of Brent fell to an average of $43.2 per barrel (/bbl) in 2020 compared to $64.2/bbl in 2019,” Fitch stated in its report.
Fitch’s predicted that net exports, driven by a sharp rebound in the oil sector in the coming quarters would be the main driver of the expansion in real GDP as oil accounts for around 90 percent of Nigeria’s exports.
The agency also projected that net exports would contribute 0.6 percentage points to headline growth in 2021.
It revealed that its oil and gas team anticipated that the value of Nigeria’s net oil exports would rise by 42.5 percent to $24.4 billion, largely because of an uptick in the average price of Brent crude to $58/bbl in 2021.
Brent crude price is currently at $65 per barrel on the international market.
“Oil revenues also account for around 50 percent government revenues, and as such the rebound will strengthen public finances, resulting in a rise in government consumption, which we expect to contribute 0.3 pps to real GDP growth.
“However, the recovery in private consumption is likely to be weak given persistently high unemployment and inflation, and subdued consumer confidence. As a result, growth in private consumption is likely to be subdued (at 0.7 percent), and its contribution to headline growth, of 0.4pps, will be fairly small considering it accounts for around 75 percent of total GDP.
“Inflation rose every month in 2020 because of rising fuel and food costs, and accelerating price growth in 2021 – we forecast an average of 14.6 percent compared to 13.2 percent in 2020 – will eat into household incomes.
“Moreover, the slow rollout of a Covid-19 vaccine – our Pharmaceuticals team does not expect mass inoculations to begin before the second half of 2021– will weigh on consumer confidence, while the continuation of limited social distancing measures is likely to depress business activity in the first half of the year. We, therefore, expect unemployment to remain high at 24.5 percent, while fixed investment will contribute only minimally to headline growth (0.2pp),” it added.
However, it stressed that should insecurity worsen and spread beyond current hotspots in the northeast and middle belt states, distribution of a vaccine would be significantly curtailed, and similarly hamper the economic recovery.