On the view of financial and economic analysts, the nation’s economy is indeed headed south judging by the different economic indices.
One body which has raised its voice above the din over the parlous state of the economy is the Central Bank of Nigeria (CBN).
The apex bank only recently reported that economic activities declined faster in June, confirming that the nation’s economy formally entered into recession in the second quarter of the year.
Economic recession is a period of general decline in economic activities and it is typically defined as a decline in year, as it recorded negative Gross Domestic Product (GDP) during the two or more consecutive quarters.
Indication that the economy suffered contraction in the second quarter, and hence a slide into recession, emerged recently, as the CBN’s Purchasing Manager Index (PMI) for June revealed that economic activities decline faster in June.
The CBN stated that the manufacturing PMI dropped to 41.9 index points in June 2016, compared to 45.8 in the preceding month. This implies that the manufacturing sector declined at a faster rate during the review period. Of the 16 manufacturing sub-sectors, fourteen recorded decline in the review month in the following order: electrical equipment; non metallic mineral products; furniture and related products; fabricated metal products; chemical and pharmaceutical products; printing and related support activities; paper products; food, beverage and tobacco products; cement; computer and electronic products; plastics and rubber products; textile, apparel, leather and footwear; petroleum and coal products and primary metal. The remaining two sub-sectors however recorded expansion in the following order: appliances and components and transportation equipment.
“The composite PMI for the non-manufacturing sector recorded decline for the sixth consecutive month. The index dropped to 42.3 points, indicating a faster decline compared to that in May 2016. Of the eighteen non-manufacturing sub-sectors, fourteen recorded decline in June 2016. Of the eighteen non-manufacturing sub-sectors, fourteen recorded decline in June 2016 in the following order: construction; professional, scientific, and technical services; management of companies; utilities; accommodation and food services; real estate, rental and leasing; electricity, gas, steam and air conditioning supply; educational services; wholesale trade; public administration; information and communication; finance and insurance; repair, maintenance/washing of motor vehicles; and arts, entertainment and recreation. The health care and social assistance sub-sector remained unchanged, while the remaining three subsectors recorded growth in the order: water supply, sewage and waste management; agriculture and transportation and warehousing,” N420bn inflow crashes cost of funds.
The Statistician General of the Federation and Director-General, National Bureau of Statistics (NBS), Dr. Yemi Kale, had last week released the nation’s economic scorecard for the first quarter of the year – GDP and Unemployment Reports.
The GDP report showed that the nation’s economy plunged into negative territory with a decline of 0.36 per cent year-on-year (y/y) in real terms.
The growth rate is 2.47 per cent and 4.32 per cent lower than what was achieved in the last quarter of 2014 and corresponding period of 2015 respectively.
In nominal terms, the total value of the nation’s economy was put at N22.26 trillion in the first three months of the year.
The NBS, however, had explained that the weak economic growth numbers could be attributed to a 5.77 per cent fall in the performance of the non-oil sector, which effectively puts its real growth rate at negative (-) 0.18 per cent in Q1 2016.
“Contractions in manufacturing (7.0 per cent), financial services (11.3 per cent) and Real Estate services (4.7 per cent) were the principal drivers for the sharp decline in the non-oil sector.
The oil sector on the other hand, however, expanded by 1.89 per cent, which is an improvement from the 8.28 per cent and 8.15 per cent recorded in Q4 2015 and Q1 2015 respectively.
This came surprising given record low oil prices at the beginning of the year coupled with marginal decline in the nation’s oil production to 2.11 million barrel per day from 2.16 million barrel per day in the last quarter of 2015.
“In terms of jobs, the nation’s economy performed woefully as well, as unemployment rate rose to 12.1 per cent in Q1 2016 from 10.4 per cent in Q4 2015. Underemployment also increased to 19.1 per cent from 18.7 per cent in the last quarter of 2015.
The poor job numbers were on the back of 1.9 per cent expansion in the country’s labour force as well as 340,000 net reduction in the number of persons in full-time employment.
While assessing the Q1 GDP number, analysts stated that the first quarter figures have set the tone for the nation to enter into an economic recession by the end of the first half of the year as the weaknesses in the non-oil sector (manufacturing and financial services) are still very inherent.
However, an economist, Professor Akpan Hogan Ekpo, has said the Nigerian economy is currently in recession, after studying relevant macroeconomic and social indices.
According to him, in economics, it is possible to ascertain that an economy is in recession through the comparative study of statistics like the GDP, unemployment rate, inflation rate, among others.
Ekpo who gave this insight which delivering a keynote paper in Lagos at the weekend at the inaugural lecture of the Centre for Financial Journalism said: “The morphology of growth indicates an economy with positive growth trajectories but no development.”
The university don, who is also the Director General of West African Institute for Financial and Economic Management, said: “The high rates of unemployment, combined with reduced output in two quarters of 2015, suggest an economy in the sphere of stagflation, a prelude to a recession.”
He also noted that GDP numbers, as provided by the National Bureau of Statistics (NBS), experienced significant declines in 2015.
“The growth of the agriculture sector’ dropped from 4.47 per cent in the third quarter of 2014 to 3.46 per cent in the same quarter of 2015, a decrease of 1 per cent,” he said.
He also noted that the industrial sectors contributions to GDP declined from 24.20 per cent in the third quarter of 2014 to 23.5 per cent in the same quarter of 2015.
“This is an unhealthy situation given the importance of manufacturing in driving growth and development as well as job creation,” he explained.
Although inflation had been steadied at single digits, due to the central bank’s tight monetary policy, Ekpo noted that the rising rate of unemployment makes mockery of the positive trajectory, currently standing at almost 27 per cent.
He lambasted the NBS for trying to shy away from this sordid fact in its latest unemployment rates that suggests the economy is close to full employment.
While admitting that recession is inevitable in any capitalist economy, Ekpo noted that the President Muhammadu Buhari government must put in place effective policies to combat the misery it brings upon the common man.
The professor went on to advocate policies that would prioritise massive investment in hard infrastructure, employment generation, investment in housing construction, rebuilding the public school system, building strong institutions, and an aggressive monetary and fiscal policy.
“It is expected that President Buhari has a committed team that would put the economy on the path of sustained growth and inclusive development,” he said.
Meanwhile, the International Monetary Fund (IMF), last Monday, admitted that the Nigerian economy “will probably” shrink in 2016, performing below the IMF forecast for the country.
Speaking in Abuja, IMF resident representative in Nigeria, Gene Leon, said energy shortages and delayed budget weigh on output in Africa’s largest economy.
After contracting by 0.4 percent in the first quarter of 2016, Leon said Nigeria will experience some growth in the second half of the year, but he added that it would not be enough to upturn initial shrinkage.
“I think there is a high likelihood that the year 2016 as a whole will be a contractionary year,” Bloomberg quoted Leon as saying.
“While the economy should look better in second half of the year, growth will probably not be sufficiently fast, sufficiently rapid to be able to negate the outcome of the first and second quarters.”
The IMF had initially cut its 2016 growth forecast for Nigeria to 2.3 percent in its April Regional Economic Outlook from 3.2 percent projected in February.
The World Bank on the other hand lowered its forecast to 0.8 percent last month, citing weakness from oil-output disruptions and low prices.
Leon said “most people would agree that if you should fix one thing in this country, it should be power. There is a need to start changing the power equation from 2016, from today, not tomorrow or later.”
He added that the inflation, which is currently at 15.6 percent, may surge a little more in the months ahead but would not go beyond 20 percent before the end of 2016.