We revise down our 2015 growth forecast for Nigeria to 2.8% (from 3.4%) following this week’s release of exceptionally weak growth data from Nigeria and South Africa. As they account for half of Sub-Saharan Africa’s (SSA) GDP, their softer growth has significant implications for the region; we now see SSA growth slowing to c. 3.5% in 2015 (vs a 2000-2014 average of 5.5% pa).
The non-oil sector drove the sharp slowdown
Nigeria’s sharp slowdown in YoY growth to 2.4% in 2Q15, vs 6.5% in 2Q14, was largely owing to a deceleration in the non-oil sector rather than a continued contraction in the oil sector. To put things in context, the oil sector’s contraction in 2Q15 was equivalent to that in 1Q14, but in 1Q14, GDP growth was still higher than 6%. This underscores the fact that the 2Q15 slowdown was mainly owing to the non-oil sector, which grew at 3.5% YoY, vs 6.7% in 2Q14. A decline in manufacturing and a slowdown in services explain the non-oil sector’s lacklustre performance.
Manufacturing is in recession
The manufacturing sector, which accounts for 10% of GDP, contracted for a second consecutive quarter, by 3.8% YoY in 2Q15, vs growth of 14.0% YoY a year earlier. This comes after double-digit growth in 2011-2014, and the decline is largely attributable to the largest manufacturing sub-sector, food, beverages and tobacco, which contracted by 5.9% YoY in 2Q15, vs growth of 5.2% YoY in 2Q14. The textiles sub-sector has also seen two successive quarters of negative growth. We believe manufacturing’s decline in 1H15 is partly because of tight FX liquidity, which makes it difficult for manufacturers to acquire imported inputs. It is also likely that severe fuel shortages in 2Q15 undermined production and distribution.
Services sector slows to 2012 lows, when fuel prices were hiked
Services make up half of Nigeria’s GDP, so performance in this sector has significant implications for overall growth. Services growth slowed to 4.7% YoY in 2Q15, from 6.5% a year earlier. Trade (the biggest services sector) remained relatively resilient, with growth at 5.1% in 2Q15, vs 5.2% in 2Q14. The slowdown in services was largely owing to weaker growth in telecoms and real estate. Public administration, a good indicator of government activity, contracted for a second consecutive quarter, by 10.6% YoY in 2Q15, vs growth of 1.2% YoY in 2Q14. We believe the political transition and the slump in fiscal revenue explain the fall in government activity in 1Q15.
Outlook marred by supply-side constraints
We revise down our 2015 growth forecast to 2.8% for two reasons: 1) 1H15 growth of 3.1% YoY came in below our 2015 forecast of 3.4%; and 2) we expect supply constraints, related to FX restrictions and the de facto import ban, to undermine growth in 2H15. As population growth is c. 3% pa, this implies negative per-capita income growth, which acts as a drag on the consumer sector. Slower growth and a sliding oil price lead us to revise our 2015 current account deficit forecast to 3.3% of GDP (vs 3.0% previously), and our budget deficit forecast to 2.5% of GDP (vs 2.2%).
