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Nigeria's Economy Expands to End the Worst Slump in 25 Years

Updated on
  • Economy expands in second quarter after shrinking in past five
  • IMF forecasts West African nation’s GDP will grow 0.8% in 2017

The Jankara market in Lagos Island.

Photographer: Frédéric Soltan/Corbis via Getty Images

Nigeria’s economy expanded in the second quarter, ending its worst slump in 25 years as agricultural and oil output increased.

Gross domestic product of Africa’s largest crude producer grew 0.55 percent in the three months through June from a year earlier compared with a revised 0.9 percent contraction in the first quarter, the Abuja-based National Bureau of Statistics said in an emailed report Tuesday. The median of 10 economists’ estimates in a Bloomberg survey was for growth of 1.3 percent.

This ends five straight quarters of contractions that also saw the economy decline 1.6 percent last year, the first such drop since 1991. The International Monetary Fund forecasts growth of 0.8 percent this year as output of oil climbs, and supply of foreign currency, needed by manufacturers to import inputs, continues to improve.

“While many will focus on the headline move back into positive territory, some of that optimism must necessarily be tempered,” Razia Khan, the head of macroeconomic research at Standard Chartered Bank Plc in London, said by email. “This is not at all a robust GDP print. It still falls far short of the growth rates the Nigerian economy should be achieving.”

Agriculture Expands

Agriculture, which vies with industries as the second-biggest contributor to GDP, expanded 3 percent in the quarter from a year earlier, the statistics agency said. Services, the largest sector at 54 percent, contracted 0.9 percent. The oil industry climbed 1.6 percent.

Nigerian authorities improved foreign-currency liquidity by introducing a trading window for portfolio investors at market-determined rates, and later by allowing commercial banks to quote the so-called Nafex rate that’s now close to pricing on the black market. Before this, the central bank regularly intervened to keep the naira at about 315 per dollar, even after months of abandoning a 197-199 peg.

The naira weakened 0.9 percent to 358.74 per dollar at 2:48 p.m. in Lagos, the commercial capital.

The central bank has kept its main lending rate at a record high of 14 percent since July 2016 to support the naira and to fight inflation that was at 16.1 percent last month, still almost double the target.

Economists including Yvonne Mhango at Renaissance Capital see the central bank continuing a tight monetary-policy stance.

“While rate cuts may be positive for private credit extension, we think the subsequent loss of foreign-currency liquidity from lower rates may hurt the economic recovery,” Mhango said by email.

President Muhammadu Buhari, who returned to Nigeria Aug. 20 after more than three months of sick leave in London, increased spending to a record 7.4 trillion naira ($20.6 billion) this year. The budget is part of a wider plan to increase the economic growth rate to 7 percent and create 15 million jobs by 2020 by pumping more crude, opening farmlands and increasing infrastructure spending.

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