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For some economists, the nation is already in recession, but the minister of finance and national Planning is optimistic that this recession may not last too long because of the positive measures being adopted to revive and stabilise the economy amidst Covid-19 pandemic
By Anayo Ezugwu
FOUR years after Nigeria exited recession, the country maybe heading into another economic downturn in the next few months. Zainab Ahmed, minister of finance, budget and national planning, had expressed fears that the nation maybe heading into recession. She said recession would happen unless Nigeria achieved a very strong third quarter of 2020 economic performance.
Speaking recently at the House of Representatives session on the 2021-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper, Ahmed said: “Nigeria’s second-quarter Gross Domestic Product, GDP growth is, in all likelihood, negative and unless we achieve a very strong Q3 2020 economic performance, the economy is likely to relapse into a second recession in four years.”
Likewise, Clem Agba, minister of state for budget and national planning, also warned against imminent recession during his recent presentation at the Senate Joint Committee on Finance and Economic Planning on the 2021-2023 Medium-Term Expenditure Framework and Fiscal Strategy Paper. He said Nigeria’s second-quarter GDP growth was likely to be negative, warning that the economy was likely to go into a second recession in four years with significant adverse consequences.
Their fears were confirmed on Monday, August 24, when the National Bureau of Statistics, NBS, released the second quarter of 2020 GDP report. The NBS announced the nation’s GDP contracted by -6.1 percent (year-on-year) in real terms in the quarter. The decline was attributed to significantly lower levels of both domestic and international economic activity during the quarter, which resulted from nationwide shutdown efforts aimed at containing the Coronavirus pandemic.
The domestic efforts ranged from initial restrictions of human and vehicular movement implemented in only a few states to a nationwide curfew, ban on domestic and international travels, closure of schools and markets among others, affecting both local and international trade. When compared with second quarter of 2019, which recorded a growth of 2.12 percent, the second quarter of 2020 growth rate indicated a drop of 8.22 percent points, and a fall of 7.97 percent points when compared to the first quarter of 2020 (1.87 percent).
Consequently, for the first half of 2020, real GDP declined by 2.18 percent year on year, compared with 2.11 percent recorded in the first half of 2019. While quarter on quarter real GDP declined by 5.04 percent. Furthermore, only 13 activities recorded positive real growth compared to 30 in the preceding quarter.
In the quarter under review, aggregate GDP stood at N34.02tn in nominal terms, or -2.8 per cent lower than the second quarter of 2019, which recorded an aggregate of N35.001tn. Overall, the nominal growth rate was –16.81 percent lower than what was recorded in the second quarter of 2019, and –14.81 percent points lower than what was recorded in the first quarter of 2020.
Following the release of the NBS report, economists and key players in the nation’s economy are worried that the federal government is not ready to explore periodic adjustment of the economy to avoid GDP contraction as recorded in the second quarter. Johnson Chukwu, chief executive officer, Cowry Asset Management Limited, said with the outbreak of COVID-19 it was difficult for the nation’s economy, like most economies around the globe, to escape sliding into recession this year in spite of measures that the Central Bank of Nigeria, CBN, and the fiscal authorities were taking to moderate the depth of the situation.
“The GDP figures coming out of countries with more robust fundamentals are already indicative of what fragile economies like Nigeria should expect. For instance, Q1 2020 China GDP was a contraction of 6.8 percent; the Eurozone is expected to contract by about 10 percent in Q1 2020.
“Although the Nigerian economy has been partially reopened in third quarter, economic activities are yet to fully resume, consumer demand remains very low, inflation is on the increase and unemployment has worsened. It is expected that the economic fallout of the pandemic, notably disruptions to global supply chains, lockdowns, travel restrictions, weakening oil prices, foreign exchange liquidity challenges and weak export would manifest in the second-quarter growth numbers, with more pronounced impact on sectors struggling with growth before this crisis,” he said.
Chukwu further noted that the purchasing managers’ index, which is a proxy to the economic outlook, has been contracting, an indication that the third quarter GDP figure is likely to come out on a negative note. “With two consecutive quarters of negative economic growth, an economy is said to be in a recession. As we all know, the UK economy is reported to have entered recession and virtually all the countries that have published their Q2 2020 GDP figures reported contraction in economic activities.
“This was most expected as world economy was virtually shut down in the second quarter due to COVID-19. Similarly, expectation is that the Nigerian economy will record contraction in Q2, 2020 when GDP figures are released by the National Bureau of Statistics (NBS) as the economy was on near total lockdown in three months.”
Like Chukwu, Muda Yusuf, director general, Lagos Chamber of Commerce and Industry, LCCI, called on the federal government to ensure dedicated implementation of the Nigerian Economic Sustainability Plan, NESP, and effective synchronisation of fiscal and monetary policies in order to give the economy a boost in the near term even though growth would continue to remain weak and fragile till the first quarter of 2021.
Yusuf said it was critically important for policymakers to tackle the twin challenge of rising inflation and unemployment rates, which are currently at a record high of 12.82 percent and 27.1 percent respectively through appropriate policies. “The Nigerian economy is currently in dire straits. The structural bottlenecks to productivity in the economy need to be urgently removed through a mix of fiscal, monetary and regulatory measures. It is imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign,” he said.
The LCCI boss expressed concern that the manufacturing sector contracted by 8.78 percent in second quarter of the year under review when compared with a marginal 0.43 percent growth in the previous sector. He, however, noted that the 6.1 percent contraction was not a surprise as the number reflected the profound impact of the COVID-19 pandemic disease on the Nigerian economy.
On his part, Evans Osabuohien, a professor of economics, advised the federal government to intensify efforts at enhancing the productive sector in order to raise the nation’s GDP. He said the decline in the GDP was largely the result of the five months of lockdown due to the COVID-19 pandemic.
Osabuohien stressed the need for the federal government to enhance the country’s production by improving power supply to enable the real sector and others to produce at a cheaper rate. “This would boost productivity and generate more employment opportunity for the teeming youths.
“In addition, this would help the country to export some of the goods to other countries that would generate more revenue as well as meeting local demands. The role of adequate power supply cannot be over emphasised, because it makes people to produce at an optimal cheaper rate,” he said.
But the Presidency has said that the 6.1 percent decline in the nation’s GDP shows that the economy isn’t in such a bad state as earlier projected by both domestic and international experts. Femi Adesina, presidential spokesman, said 6.1 percent economic contraction beat the projected forecasts of 7.24 percent decline by the experts.
He said the overall decline of 6.1 percent (for second quarter of 2020 and 2.18 percent (for first half of the year was better than the projected forecast of 7.24 percent as estimated by the NBS. He, however, attributed the improvement to the various proactive measures put in place by the federal government to strengthen the economy and arrest the downward trajectory.
“The government’s anticipation of the impending economic slowdown and the various initiatives introduced as early responses to cushion the economic and social effects of the pandemic, through the Economic Sustainability Programme contributed immensely to dampening the severity of the pandemic on growth.
“On the fiscal side, a robust financing mechanism was designed to raise revenue to support humanitarian assistance in addition to special intervention funds for the health sector. Adjustments to the national budget as well as emergency financing from concessional lending windows of development finance institutions were critical in supporting government’s capacity to meet its obligations.
“On the monetary side, moratorium on loans, credit support to households and industries, regulatory forbearance and targeted lending and guarantee programmes through NIRSAL were some of the measures implemented in response to the pandemic during the second quarter.
It is equally worth noting that since the start of the third quarter, the phased approach to easing the restrictions being implemented centrally and across states have resulted in a gradual return of economic activity, including the possibility of international travel,” he said.
– Aug. 28, 2020 @ 17:59 GMT |
Tags: Nigeria heading into another round of recession
