Explained: How exiting recession affects you

The National Bureau of Statistics announced on Tuesday that Nigeria has now exited from recession. This is after a real GDP growth rate of 0.5% in the second quarter of 2017. In this article, we will attempt to explain what this means to you as an ordinary Nigerian.

What is GDP

Gross Domestic Product (GDP) is a measure of the goods and services produced in a country at a given point in time. A GDP growth rate is therefore the difference between GDP of one period (usually a quarter) to a corresponding quarter in a prior period.

Why GDP Growth rate

GDP growth rate is used the world over as a measure of progress in economic activities in a country. For developing economies like Nigeria, GDP growth rates are often expected to be in double digits while developed economies like the US and UK typically post GDP growth rates of less than 2%. This is because the economies of smaller countries like Nigeria are expected to grow faster than more mature ones. A GDP growth rate of 0.5% though a good development is quite paltry and will need to improve in the coming quarters for the wider economy to feel the effect.

What is recession?

A recession is when an economy fails to grow for two consecutive quarters in a given year. Nigeria’s GDP contracted consecutively for the four quarters of 2016 and the first quarter of 2017. A negative GDP implies that economic activities in the country have reduced in one period compared to the corresponding period last year. Contracting twice in a row suggest the economy is in a bad shape.

Why is this important?

A recession indicates the economy is in bad shape in nearly all sectors of the economy. During recession, businesses post lower revenues, more losses, prices of goods and services fail to rise or sky rocket (like in our case) and jobs are lost. The government also experiences a drop-in revenue and finds it hard to fund its developmental obligations.

Does end of recession mean all is well?

Yes, the end of recession means well. A country exiting recession only indicates economic activities are no longer contracting on a general scale. It also means business activities are now picking up in most parts of the economy. While an end of recession is good for the economy in general, certain sectors or businesses may still be experiencing slower growth due to drops in sales and lack of demand. However, it is expected that as things improves around the economy it will stimulate other sectors, then other businesses will start to feel the boom too.

Does it mean more jobs?

Technically, a return to growth in the economy should translate to more jobs in the near term. This is because when an economy experiences growth, businesses can sell more goods and services and in fact add more jobs. Unfortunately, this process takes quite some time to materialise as businesses will have to increase inventory, start marketing, sell their products, then actually see their bottom line improve before they decide to employ more people. However, the fact that the economy is growing is an indication that we are in the right direction.

Does it mean lower prices for goods and services?

Getting out of recession does not necessarily mean that prices of goods and services will drop or are rising; a measure for that will be inflation rate. Indeed, being out of recession more likely indicates that in time, Nigerians may have more money to afford goods and services as the general growth in economic activity starts to spread across the country.

Does exiting recession affect exchange rate?

Not exactly. However, it is expected that when economic activities pick up in the country, the exchange rate will remain stable and importers will have access to more dollars to continue to import goods and services and continue their trade. Also, foreign investors are typically disposed to invest in emerging economies that have positive GDP growth rate and flee from those in recession. Therefore, now that we are out of recession, we expect to see more foreign inflows and thus a stronger naira. This is already happening.

Will my life improve?

As mentioned, exiting recession is a good thing for the economy; however, it doesn’t mean everyone will benefit at the same time or even benefit at all. Whether your life improves will depend on your personal development, opportunities that come to you, health and luck. The good thing, however, is that with the economy back on the path of growth, the chances that you will get an opportunity to change your life for the better has all but improved, at least a bit. Taking advantage of that now depends on you.

 

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