Nigeria may slip into second recession as there is high possibility that the economy will contract in the third quarter, the Lagos Chamber of Commerce and Industry has warned.
This was contained in a statement it tagged ‘LCCI comments on second quarter GDP report’ made available to our correspondent on Monday in Lagos.
In the statement signed by its Director-General, Dr Muda Yusuf, the chamber noted that although there had been a gradual reopening of the economy, business and commercial activities remain subdued, which kept them at recessionary threshold.
Yusuf lamented the decline in national output in the second quarter of 2020, quoting the report of the National Bureau of Statistics on the GDP, that the economy contracted by a record 6.1 per cent in the second quarter, and this marked the steepest quarterly contraction in Nigeria’s recent economic history.
He said the contraction in the second quarter ended the three-year trend of marginal but positive growth era the Nigerian economy had after exiting recession in Q2- 2017.
He said many sectors had also experienced contraction given the COVID-19 pandemic, which include manufacturing, oil and gas, aviation, real estate, arts and entertainment among others.
He called for deliberate policies to address these in order to reflate the rising inflation and the gale of unemployment confronting the nation.
He said, “Although there has been a gradual reopening of the economy, we note that business and commercial activities remain subdued, evidenced by July PMI readings which shows business activities is still in the recessionary threshold.
“Given the protraction of the Covid-19 pandemic and lack of a vaccine, there is high possibility that the economy would contract, though marginally, in the third quarter and this would mark the second recession under the watch of the current administration.
“It is imperative to ensure effective synchronisation of fiscal and monetary policies and proper implementation of the sustainability plan among other measures.
“The structural bottlenecks to productivity in the economy needs 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.
“The Nigerian economy is currently in dire straits. Apart from the urgent need for policymakers to reflate the economy, it is critically important for policymakers to also tackle the twin challenge of rising inflation and unemployment rates.
“With inflation and unemployment at record high of 12.82 per cent and 27.1 per cent respectively.”
Giving sectoral performance, he noted that In all 46 sectors it surveyed, 19 sectors contracted; 14 sectors are in recession, 11
sectors expanded, and two sectors reported slowdown in growth.
He said, “Oil & gas sector contracted by 6.65 per cent in Q2-2020 compared to 5.06 per cent expansion reported in the preceding quarter.
“The huge contraction was driven by low crude production, which averaged 1.81 mbpd in the quarter, and which is the lowest since Q4-2016.
“We attribute the low level of crude production in Q2-2020 to OPEC+ production cut agreement (which became effective in May 2020), aimed at rebalancing the oil market.
“We also note that the economy experienced stockpiles of unsold crude cargoes particularly in April and early May, due to collapse in crude demand from Asia and Europe.
“The non-oil sector contracted by 6.05 per cent in the second quarter, driven by the more pronounced impact of global disruption, lockdown, domestic movement restrictions, flight suspension, restricted international trade as well as subdued commercial & business activities.
“Key sectors of interest to us include:
Trade: Trade is Nigeria’s second biggest sector by percentage contribution to output.
“We note that the sector has been in recession since Q3-2018 due to the closure of the land borders, port inefficiencies, and weak consumer spending among other structural challenges.
“These challenges coupled with the global pandemic magnified the magnitude of contraction to 16.59 per cent in Q2-2020 from -2.82 per cent reported in Q1-2020.
“Agriculture grew at a slower pace in Q2-2020. The sector expanded by 1.58 per cent in Q2-2020 compared with 2.2 per cent in Q1-2020.
“Crop production, which accounts for over 85 per cent of agricultural output, recorded moderation in growth from 2.38 per cent in Q1-2020 to 1.44 per cent in Q2-2020.
“The slowdown was driven by disruption to the food supply chains, difficulties experienced by farmers in conveying their products inter-state and insecurity in food producing areas.
“Manufacturing: We note with concerns that the manufacturing sector has been struggling with growth before the outbreak of the novel coronavirus, despite being one of the biggest beneficiaries of CBN’s loan-to-deposit policy.
“Manufacturing sector contracted by 8.78 per cent in Q2-2020 compared with a marginal 0.43 per cent growth in the previous sector.”
Yusuf said of the 13 sub-sectors in the manufacturing space, only two sectors – chemical & pharmaceutical products and motor vehicles & assembly reported positive growths, while the other 11 sub-sectors had negative growth.
“In our view, we believe the weakness of manufacturing sector was due to global & domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending and high operating costs,” he said.