Rencap retains growth forecast for Nigeria despite Q1 GDP contraction

24 May 2017
Financial Nigeria


Rencap says it still believes Nigeria’s economy is coming out of recession as the rate of GDP contraction slowed in Q1’2017.

Nigerian Acting President Yemi Osinbajo

Renaissance Capital, a Russian investment bank, said today that it still expects Nigeria’s economy to grow by 0.5 percent in 2017, notwithstanding the country’s negative GDP growth in the first quarter of the year. On Tuesday, the National Bureau of Statistics reported that Africa’s largest economy contracted by 0.52 percent in Q1’2017, representing the fifth consecutive quarter of negative GDP growth.

Rencap said it still believes Nigeria’s economy is coming out of recession as the rate of GDP contraction slowed in Q1’2017 compared to the previous quarter.

“We think the Nigerian economy could start growing again as soon as 2Q’17, albeit modestly,” Rencap said in a note written by Yvonne Mhango, the bank’s Sub-Saharan Africa Economist. “We maintain our 0.5% growth forecast for 2017, which we think will be led by agriculture, and the oil and manufacturing sectors. Construction exited six quarters of recession in 1Q’17; we think a pick-up in government capex from 2H17 implies its recovery will continue. Nigeria’s relatively consistent rainfall implies agriculture is likely to grow by 3.5-4.0%.”

The Moscow-based bank said it expects oil production to improve in 2017, from 1.8 million barrels per day in 2016, partly due to the reported tripling of the budget for the Niger Delta amnesty programme.

“The recovery of food and beverages, which account for almost half of manufacturing, is likely to be sustained in 2017, in our view, partly because of improved FX liquidity,” Rencap said. “We believe the services recovery will lag that of the rest of the economy, mainly because its performance is linked to that of the stressed consumer. The risk to our outlook is a protracted recession weakening the case for tight monetary policy.”

Rencap said it has revised its 2017 inflation forecast from 11 percent to 14 percent due to the year-to-date pickup in month-on-month inflation as strong non-food (mainly energy costs) inflationary pressures persist.

“We also think fiscal spending and CBN financing of the budget deficit are upside risks to inflation,” Rencap said. “Sticky inflation gives us more reason to maintain our hawkish 2-4 points rate hike view, by year-end 2017.”

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