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Q3-22 Growth Momentum Slowed Compared to Same Time Last Year—Report

According to the recently released GDP report by the National Bureau of Statistics (NBS), domestic economic activity maintained its positive growth path in Q3-22. However, the growth momentum slowed compared to the prior quarter. Specifically, the economy grew by 2.25% y/y (Q2-22: +3.54% y/y) amidst high production costs and unfavourable base effects from the preceding year. The growth outturn is 65bps lower than Cordros’ estimate (+2.90% y/y) and Bloomberg’s median consensus (+2.90% y/y) estimate, respectively. Decomposing the breakdown provided, we note that the oil sector contracted by 22.67% y/y (Q2-22: +11.77% y/y) while the non-oil sector grew slower by 4.27% y/y (Q2-22: +4.77% y/y). On an attribution basis, the Services and Agriculture sectors contributed 3.48% and 0.40%, respectively, to GDP growth. In parallel, Industries (-1.63%) contributed negatively to the GDP growth.
The oil sector remains in a contractionary territory given lingering challenges
There is no respite yet for the oil sector as it declined by 22.67% y/y in line with the persistent production challenges facing the sector. Notably, crude oil production fell to a new record low of 1.20mb/d (Q2-22: 1.43mb/d) – 34.4% below the country’s OPEC+ production quota (1.83mb/d) during the review period. The persistent low crude oil production volume reflects the passthrough impact of (1) age-long infrastructural deficit, (2) massive oil theft and pipeline sabotage and (3) IOC divestments, given the challenging business environment and the move to cleaner energy sources. Importantly, our analysis of the data from the NUPRC showed that crude oil production declined significantly across the Bonny (-86.2% y/y), Forcados (-66.5% y/y), Agbami (-15.2% y/y), and Escravos (-3.3%% y/y) production terminals.
Non-oil sector’s growth momentum slows further
The non-oil sector grew at a slower pace for the second consecutive quarter, growing by 4.27% y/y (Q2-22: +4.77% y/y). On the one hand, the Services GDP growth settled at 7.01% y/y (Q2-22: +6.70% y/y), underpinned by the solid growth momentum across the ICT (+10.53% y/y vs Q2-22: +6.55% y/y), Trade (+5.08% y/y vs Q2-22: +4.51% y/y), Real estate (+4.56% y/y vs Q2-22: +4.42% y/y) and Finance & Insurance (+12.70% y/y vs Q2-22: +18.48% y/y) sub-sectors. Whereas the Manufacturing sector (-1.91% y/y vs Q2-22: +3.00% y/y) recorded its first contraction since Q4-20 (-1.51% y/y) driven by (1) high production costs exacerbated by rising energy costs, currency pressures and (2) depressed demand in line with elevated inflation. Elsewhere, the Agriculture sector grew by 1.34% y/y (Q2-22: +1.20% y/y) as higher input costs continue to weigh down the government’s fiat-led interventions.
We expect the economy to grow by 2.14% y/y in Q4-22
While we acknowledge the government’s recent efforts at combating oil theft, we expect crude oil production to remain underwhelming in the short term, given that the existing production challenges linger. Accordingly, we expect crude oil production to settle at 1.35mb/d in Q4-22, translating to an oil GDP decline of 10.00% y/y. Elsewhere, we expect the lagging impact of the recent flooding incidents and high fertiliser prices to whittle the Agriculture sector’s growth even as the sector continues to enjoy government interventions. Moreover, we expect the Service sector to maintain its growth, albeit slowly. The Manufacturing sector is also likely to grow modestly, given favourable base effects amidst the rising cost of production and pressured local demand. Accordingly, we forecast the non-oil sector to grow by 2.80% in Q4-22. All in, we expect growth to settle at 2.14% y/y in Q4-22 and revise our 2022FY growth forecast to 2.72% y/y (Previously: 3.01% y/y).
*Report from Cordros

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