Assessing Nigeria’s 2023 GDP Growth Forecast

With Nigeria’s economy growing year on year by 3.52 per cent in the last quarter of 2022, analysts are divided on what the year will look like for the country as some are beginning to align with the 2.9 per cent Gross Domestic Product (GDP) growth as predicted by the World Bank earlier this year.

The National Bureau of Statistics (NBS), last week, released the GDP growth rate for the fourth quarter of 2022, prompting some analysts to review downwards their growth forecast for the country, while some remained optimistic. Average GDP growth forecast by five analysts stood at 3.06 per cent.

Analysts at Cowry Assets Management remained optimistic about the nation’s economy, reviewing forecast for the country upwards to 3.74 per cent for 2023 as against an earlier projection of 2.9 per cent. 

Similarly, analysts at FBN Quest remained optimistic with a 3.2 per cent projection for 2023 year end.

On the other hand, analysts at Afrinvest West Africa said, they expect the country’s economy to grow by 2.99 year on year in 2023, while analysts at Meristem and Cordros Research were more pessimistic with a 2.7 per cent growth expectation. 

Earlier this year, the World Bank had cut Nigeria’s projected growth in its Nigeira Development Update to 2.9 per cent from 3.1 per cent, citing the downturn in its oil sector as well as the aftermath of rising insecurity and flooding in the country.

The GDP report by the NBS showed that the domestic economy grew by 3.52 per cent year on year in Q4, 22 as against the third quarter growth rate of 2.25 per cent, with the deviation stemming from a better-than-expected growth outcome in the non-oil sector. The Q4-22 tally brought the 2022 full-year growth print to 3.10 per cent lower than the 3.4 per cent that was printed for the 2021 full year.

The growth print was primarily driven by the non-oil sector, reflecting gains associated with the sturdy telecommunication sub-sector’s performance, seasonality effect in agriculture, albeit limited by flooding incidents, manufacturing sector’s return to growth, and improved credit to the private sector.

Latest figures marked the ninth consecutive quarters of positive growth. Although the agriculture sector grew by 2.05 per cent in Q4’22, its performance was significantly fraught by severe incidences of flooding experienced across the country, accounting for lesser growth relative to the fourth quarter of 2021, which was 3.58 per cent; then, the industry sector saw a retarded growth of 0.94 per cent, contributing less to the total output as against the last quarter and Q4’21.

As expected, the non-oil economy was the primary driver of GDP growth. It expanded by 4.44 per cent in Q4 ’22, up ‪from 4.27 per cent‬ in the previous quarter. In terms of contribution, the non-oil sector’s share of GDP increased to 95.66 per cent from 94.34 per cent in Q3 ’22.

Oil GDP shrank by 13.38 per cent, compared with a 22.67 per cent contraction in Q3 ’22. According to NBS, Nigeria’s average crude oil output during the quarter was 1.34 million barrels per day (mbpd), compared with 1.5mbpd recorded in Q4 ’21, and below the OPEC quota of 1.74mbpd.

According to analysts at Cowry Assets, in 2022, “growth momentum saw a knock to print below the 2021 overall average as weak macro fundamentals emanating from the effects of geopolitical (Russia-Ukraine) unrest, expanding inflation, other environmental factors such as floods, and intensified monetary policy tightening by the central bank took centre stage.

“Amidst these drags, Nigeria needs to achieve GDP growth of over six per cent to achieve more inclusive growth and move closer to its long-run GDP potential. For Cowry Research, we forecast year 2023 growth of 3.74 per cent, revised from our earlier projection of 2.9 per cent, as base effects taper off.”

Meanwhile, analysts at Meristem said they “anticipate increased oil production in 2023 hinged on intensified efforts by the Federal Government to combat the aforementioned challenges plaguing the sector and reopening of the Forcados terminal. In addition, Dangote Refinery which is expected to become operational in Q2:2023 poses an upside to the growth expectation for the oil sector.”

Whilst noting that they expect the cash crisis as well as higher lending rate and moderate expansion in loan books, higher rate of financial inclusion, as well as increased insurance penetration to drive the services sector in 2023, Meristem analysts said: “damages of banking infrastructure resulting from the crisis related to the cash-crunch could result to higher insurance claims thereby posing downside risks to the sector’s growth. We also expect the cash crisis to have a significant impact on the informal trade sector being majorly a cash settled market.”

Similarly, analysts at Cordros stressed that, aside from the high production costs exacerbated by high energy prices, elevated borrowing costs and foreign exchange constraints, they “expect the lingering cash crunch to also negatively impact the Manufacturing sector. We understand that producers are now producing below capacity, given the low consumer spending associated with cash shortages and the cessation of N1000 and N500 as legal tenders.”