The National Bureau of Statistics (NBS) reported that Nigeria’s economy expanded by 2.28% y/y in Q3-2019 from 1.94%y/y in Q2-2019. The GDP growth in Q3 represents a 47bps increase when compared with the 1.81% y/y achieved in the same period of 2018. The Q3 GDP growth is also 17bps higher that Q2-2019 revised growth of 2.12% y/y (previously; 1.94% y/y).

The uptick in the country’s growth momentum was supported by a 1.85% y/y growth in the non-oil sector- the largest part of Nigeria’s economy. However, its contribution to the total GDP moderated to 90.23% from 91.02% in Q2-2019. On the other hand, growth in the oil-sector moderated slightly by 68bps to 6.49% y/y from 7.17% y/y in Q2-2019 while the sector’s contribution to the total GDP rose to 9.77% from 8.98% in the second quarter.

The uptick in non-oil sector growth was on the back of a slight improvement in output from the real sectors (i.e. Agriculture, Mining & Quarrying, Manufacturing and Construction). Overall, the real sectors grew by 2.8% y/y in the review period compared to a growth rate of 2.3% y/y recorded in Q2-2019.

All the components of the real sector, save for Mining & Quarrying, recorded an improvement in the quarter as the agricultural sector grew by 2.28% y/y (Q2-2019: 1.79% y/y), manufacturing sector grew by 1.10% y/y (Q22019: -0.13% y/y) while the construction sector grew by 2.37% y/y (Q2-2019: 0.67% y/y). In contrast, output growth from the mining & quarrying sub-sector softened in real terms to 6.19% y/y in the review period from 7.00% y/y in Q2-2019.

Besides the improvements in the real sectors, the transportation and storage sub-sector also a delivered stellar growth in the third quarter, up 18.24% y/y (Q2-2019: 8.02% y/y) while the information and communication sub-sector also expanded further by 9.88% y/y (Q2-2019: 9.01% y/y).

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Meanwhile, the contraction in the trade sector deepened to -1.45% y/y while the real estate sector also contracted by 2.31% y/y in the third quarter. Noteworthy to mention, the financial sector bucked its four consecutive quarters of negative growth and recorded a growth of 1.07% y/y- we believe this was largely supported by the strong growth in the loan books of most deposit money banks (DMBs) in the period.

In our opinion, the recent policy by the Central Bank to improve lending and support growth in the real sector appears to be kicking in. The implementation of the loan-to deposit ratio (LDR) guideline early enough in the quarter, compelled banks to lend to the real sectors and had a multiplier effect on output from both the real sectors and the financial & insurance sector and by extension aggregate economic output.

In the near term, we expect the Nigerian economy to remain in a cycle of secular stagnation, but we believe the Central Bank will continue to implement unconventional policies to improve economic growth in the long-term. Although rising inflation expectations remains a risk, we expect the CBN to remain on hold in the short-term: hiking rates, in recognition of increased upside risks to inflation and mounting external sector pressures would further constraint economic growth; while a rate cut is likely to intensify risks to NGN stability, resulting in increased capital outflows.

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