GDP contraction: Economists predict second recession under Buhari
The Lagos Chamber of Commerce and Industry has predicted a second recession under the watch of the current administration.
It said, “Given the protraction of the Covid-19 pandemic and lack of a vaccine, there is high possibility that the economy would contract, though marginally, in the third quarter and this would mark the second recession under the watch of the current administration.”
The chamber also declared that the latest Gross Domestic Product report by the National Bureau of Statistics showing a contraction of 6.1 per cent was an indication that the three-year marginal but positive growth era that Nigeria enjoyed after the 2016 recession has ended.
The chamber made this declaration in a statement on Monday.
In addition to the LCCI statement, a professor of economics, Akpan Ekpo had stated in an exclusive interview with our correspondent that second consecutive contraction in the economy would usher in a recession, marking the second one under the current administration.
The NBS had released a second quarter GDP figure showing that the economy contracted by 6.1 per cent.
LCCI expressed concerns about the decline in national output saying that the contraction in the GDP figure was the steepest in Nigeria’s recent economic history.
In the statement signed by the Director-General, LCCI, Mr Muda Yusuf, the chamber said, “The 6.1 per cent contraction is not a surprise as the number reflects the profound impact of the covid-19 pandemic on the Nigerian economy.
“The containment measures including lockdown, national curfews, inter-state travel bans, closure of schools, airlines, businesses imposed globally and domestically to slow the spread of the pandemic, significantly disrupted global supply chains and destabilized commercial, business, investment, and trade activities.
“In addition to these, it was also in the second quarter that the country was confronted with weakening oil prices, low crude production, huge volume of unsold crude cargoes, foreign exchange scarcity, depleting external reserves, portfolio outflows in the financial markets, disruption and adjustment of the 2020 budget, revenue collapse from oil and non-oil sources, rising spate of job losses, high food prices, among others.”
On sectoral performance, the LCCI observed that 46 sectors contracted, 14 sectors are in recession while 11 sectors expanded.
Among the sectors that contracted were the oil and gas sector that recorded 6.5 per cent contraction as against 5.06 per cent expansion recorded in the preceding quarter, the non-oil sector, 6.05 per cent.
The chamber noted also that trade, the second biggest sector by contribution to output had been in recession since Q3 2018 due to the closure of the land borders, port inefficiencies and weak consumer spending among other structural challenges.
Growth in agriculture had been slow while the manufacturing sector struggled before the outbreak of the covid-19 pandemic.
Of the 13 sub sectors in the industry, on two sectors, chemical and pharmaceutical products and motor vehicle and assembly reported positive growth.
“In our view, we believe the weakness of manufacturing sector was due to global and domestic supply chain disruptions, foreign exchange illiquidity, weak consumer spending and high operating costs,” the chamber stated.
ICT continued in a positive growth trajectory while the aviation, real estate and arts and entertainment sectors were not that lucky, partly because of the shutdown of air space, hotels and event centres.
Assessing the situation, LCCI stated, “The Nigerian economy is currently in dire straits.”
It advised on the urgent need for policy makers to reflate the economy and tackle the twin challenge of rising inflation and unemployment rates which currently stand at record high of 12.82 per cent and 27.1 per cent respectively.
Applauding the effort so far by the government, the chamber stated, “We note that the fiscal and monetary authorities have implemented several policies to mitigate the adverse impact of the covid-19 shock on the economy and business environment.
“Noteworthy is the Nigerian Economic Sustainability Plan, which proposes a N2.3tn stimulus package, equivalent to 1.5 per cent of GDP. We acknowledge the commitment of government to support the economy and protect businesses.”
In its outlook, LCCI said, “Although there has been a gradual reopening of the economy, we note that business and commercial activities remain subdued, evidenced by July Production Managers’ Index readings which shows business activities is still in the recessionary threshold.
“It is imperative to ensure effective synchronization of fiscal and monetary policies and proper implementation of the sustainability plan among other measures. The structural bottlenecks to productivity in the economy needs to be urgently removed through a mix of fiscal, monetary and regulatory measures. It is imperative to reduce policy uncertainties in order to inspire the confidence of investors, both domestic and foreign.
“ This would give the economy a boost in the near term. However, growth will continue to remain weak and fragile till the first quarter of 2021.”