…Warns growth will continue to remain weak, fragile till first quarter of 2021
The Lagos Chamber of Commerce and Industry (LCCI) has raised concern over the decline in national output in the second quarter of 2020.
According to the GDP report by the National Bureau of Statistics (NBS), the economy contracted by a record 6.1 percent in the second quarter marking the steepest quarterly contraction in Nigeria’s recent economic history.
The contraction in the second quarter of 2020 also ended the three-year trend of marginal but positive growth era the Nigerian economy had after exiting recession in the second quarter of 2017.
Speaking in a statement in Lagos on Monday, the Director General of LCCI, Dr. Muda Yusuf stated that the 6.1 percent contraction was not a surprise as the number reflected the profound impact of the Covid-19 pandemic on the Nigerian economy.
Yusuf noted that 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.
According to him, 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.
“We note the weak performance of the economy at sectoral level, particularly among critical sectors with potentials to facilitate economic diversification. While some sectors did expand in the second quarter, most of the sectors that reported positive growth in the first quarter plunged into sharp contraction while others maintained their position in recessionary territory.
“In all 46 sectors, 19 sectors contracted; 14 sectors are in recession, 11 sectors expanded and two sectors reported slowdown in growth”, he said.
The Director General observed that the oil and gas sector contracted by 6.65 percent in the second quarter of 2020 compared to 5.06 percent expansion reported in the preceding quarter adding that the huge contraction was driven by low crude production, which averaged 1.81 million barrel per day in the quarter, which according to him was the lowest since the fourth quarter of 2016.
“We attribute the low level of crude production in Q2-2020 to OPEC+ production cut agreement (which became effective in May 2020), aimed at rebalancing the oil market. We also note that the economy experienced stockpiles of unsold crude cargoes particularly in April and early May, due to collapse in crude demand from Asia and Europe. In addition to these, the steep contraction was also fuelled by weakening oil prices witnessed in the quarter. We note that oil prices averaged $33/bbl in Q2-2020 compared to $51/bbl in the first quarter”, he added.
Yusuf maintained that the non-oil sector contracted by 6.05% percent in the second quarter, driven by the more pronounced impact of global disruption, lockdown, domestic movement restrictions, flight suspension, restricted international trade as well as subdued commercial and business activities.
While insisting that the Nigerian economy was currently in dire straits, he advised that apart from the urgent need for policymakers to reflate the economy, it was critically important for policymakers to also tackle the twin challenge of rising inflation and unemployment rates, with inflation and unemployment at record high of 12.82% and 27.1% respectively.
He continued, “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 N2.3 trillion stimulus package, equivalent to 1.5% of GDP. We acknowledge the commitment of government to support the economy and protect businesses.”
Speaking on the general outlook, the DG opined that although there has been a gradual reopening of the economy, business and commercial activities remained subdued, evidenced by July PMI readings which showed business activities was still in the recessionary threshold.
“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.
“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 need 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”, he submitted.
Photo: Director General, LCCI, Dr. Muda Yusuf.
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