The latest data from the NBS show that GDP contracted by -2.1% y/y at constant basic prices in Q2 2016, compared with -0.4% the previous quarter. We had expected still worse figures. The oil economy shrank by -17.5% y/y as a consequence of the heightened sabotage. The NBS commentary estimated average oil output at 1.69 mbpd, compared with 2.10 mbpd in the first quarter. For the non-oil economy, the contraction picked up from -0.2% y/y to -0.4%. By most criteria, Nigeria has now entered a technical recession.
The commentary made a cute distinction between the seven segments of the non-oil economy which managed positive growth in Q2 and the 19 which did not, many of which were “substantially, indirectly dependent on the oil sector”. We do not see how any segment outside the subsistence economy is not dependent on the sector.
The special economic advisor to the president, citing separate data, noted in his comments on the national accounts that investment/GDP had risen to 17%, its highest level since 2010. The comparable figure for 2015 (calendar year) was 15.2% according to the NBS. We assume (see below) that this investment would have been predominantly domestic.
The NBS has also released its Capital Importation report for Q2, and the news is no better. The figure of just US$647m for the quarter represents declines of 9% q/q and 76% y/y. The exchange-rate and other reforms should together bring a pick-up from this low level.
Base effects suggest further deep contraction y/y for the oil industry in Q3. We expect real GDP contraction of -1.5% y/y in the quarter, followed by a modest return to positive territory in Q4. These projections assume that the FGN is able to restore relative security to the Niger Delta.
