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HomeBusinessKPMG Lowers Nigeria's 2023 Economic Growth Forecast to 2.65%

KPMG Lowers Nigeria’s 2023 Economic Growth Forecast to 2.65%

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Professional services firm KPMG has revised its growth projection for the Nigerian economy in 2023, lowering it from the previously projected 2.85 percent to 2.65 percent.

The adjustment comes as a result of multiple factors affecting the country’s economic performance, according to a flashnote titled ‘Underwhelming Q2 2023 GDP Growth Recorded’ released over the weekend.

KPMG attributed this downward revision to a combination of influences, including a recent decline in oil production, limited government investment in the economy, the repercussions of subsidy removal, and the impact of foreign exchange (FX) rate unification on households.

In its statement, KPMG expressed that the GDP results for the second quarter of 2023 align with the firm’s earlier downward revision of the annual GDP growth to 2.85 percent. However, they are now making an additional downward adjustment to 2.65 percent for the full year.

The report highlighted the challenges ahead, stating that the half-year GDP for 2023 stands at 2.41 percent. Achieving an average growth rate of 3.30 percent in the second half of 2023 and reaching the previously projected 2.85 percent and 3.0 percent for the year appears challenging and unlikely.

KPMG emphasized that the second quarter of 2023 saw a substantial impact from subsidy removal, FX unification, and other reforms by the new administration. These changes significantly affected household consumption demand, increased firms’ operational costs, and hindered private investment.

Firms were observed to be cautious, adjusting strategies to cope with rising costs and reduced demand for goods and services while facing difficulties in obtaining sufficient foreign exchange for operations.

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Considering the importance of household consumption and private investment in GDP composition, these factors are likely to constrain non-oil sector growth.

One remarkable consequence of the subsidy removal was a substantial contraction in road transportation GDP during Q2 2023. Despite the removal taking place in June, the road transport GDP saw a contraction of -55.14 percent, the most significant decline in this sector’s history.

KPMG noted that while inflation results for the same month appeared less pronounced, the contraction in road transportation GDP contradicted these muted inflation figures. This discrepancy arises from the methodology of using inflation rates to deflate nominal GDP for each sector.

Furthermore, KPMG highlighted the muted government capital investment in the economy during Q2 2023 and the initial part of Q3 2023. With new administrations at the federal and state levels settling into their roles, government investment remained restrained.

Additionally, the report pointed out that oil production commenced in Q3 2023, with a further contraction in July 2023. If this trend persists for the remaining months of Q3 2023, a situation of underperformance in both the non-oil and oil sectors could arise.

KPMG anticipates continued inflation increases throughout the year, amplifying the pressure on nominal to real gross domestic product (GDP) and subsequently constraining higher real GDP growth in Q3 2023.

The National Bureau of Statistics (NBS) recently disclosed that Nigeria’s GDP growth decelerated to 2.51 percent in the second quarter (Q2) of 2023 due to the challenging economic conditions prevailing in the country.

(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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