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Nigeria experienced a decline in its GDP growth rate in the first quarter of 2023, dropping from 3.52% in Q4 2022 to 2.31%. The slowdown was driven by the adverse effects of the naira redesign policy, which was implemented in the previous quarter. The non-oil sector, which had been steadily growing since Q3 2022, also experienced a slowdown, with its growth rate decreasing to 2.77% in Q1 2023 from 4.44% in the previous quarter. On the other hand, the oil sector contracted by 4.21%, showing an improvement from the -13.38% growth recorded in Q4 2022. The increase in the oil sector's growth was attributed to the rise in average domestic oil production, which increased to 1.51 million barrels per day (mbpd) from 1.34 Mbps in Q4 2022, because of the government's efforts to curb oil theft and vandalism.
Analyzing the GDP growth on a sectoral basis, the agriculture sector contracted by 0.90% y/y(compared to a growth of 2.05% y/y in Q4 2022), the industries sector witnessed a growth of 0.31% y/y (compared to a decline of 0.94% y/y in Q4 2022), and the services sector grew by 4.35% y/y (compared to a growth of 5.69% y/y in Q4 2022). In terms of contribution to overall output growth, the services sector accounted for 57.29%, followed by the agriculture sector at 21.66%, and the industries sector at 21.05%.
Shifting focus from GDP, The Monetary Policy Committee held its 291st meeting in May 2023and voted to hike the MPR by 50bps to 18.50%. The committee's rationale for adopting a moderately tight stance is to support the CBN’s effort to drive down its perceived demand-pull inflation, narrow real interest GDP, and emphasize the Apex Bank’s commitment to rein in inflation. The increase in the MPR has, however, not been so effective in cooling inflation because the monetary policy transmission mechanism is weak. The ongoing series of rate hikes has the potential to overheat the economy, as businesses are constrained, and output levels have declined. Consequently, the domestic economy may be at risk of experiencing stagflation, with the subsequent decline in consumers' standard of living. Despite this, the committee decided to maintain the asymmetric corridor at +100/-700bps around the MPR, while the Cash Reserve Ratio (CRR) and Liquidity Ratio remained at 32.5% and 30.00%, respectively.
In recent developments, Nigeria is still facing the challenge of mounting inflationary pressures, as the headline inflation rate continues to rise for the fifth consecutive month. This persistent trend can be attributed to various factors, including ongoing food shortages and the impact of increased transportation costs and currency fluctuations. As a result, the National Bureau of Statistics (NBS) reported that consumer prices rose by 19 bps to reach 22.41% y/y(compared to 22.22% y/y in April). This increase was primarily driven by a rise in the food basket, which registered a 21 bps increase to reach 24.82% y/y, while the core basket experienced a slight moderation of 7 bps to reach 20.06% y/y, influenced by base effects.
In the final week of May, Nigeria celebrated the inauguration of the Dangote Oil Refinery, overcoming previous setbacks and cost overruns. Once operational, the refinery is projected to process 650,000 barrels per day (bpd) of crude oil, fulfilling domestic demand for petroleum motor spirits (PMS) and potentially even allowing for export contributions. Furthermore, as the refinery plans to export a portion of its refined oil products to Europe, Latin America, and African markets, the Nigerian economy is poised to gain from heightened export earnings. However, it is important to note that while the Dangote refinery is a significant development, it alone cannot fully resolve Nigeria's foreign exchange (FX), energy, and revenue challenges. Purposeful fiscal and monetary policies are still necessary to tackle the underlying issues that hinder FX inflows from other sources and promote fresh investments in the energy sector.
On May 29th, the Federal Republic of Nigeria witnessed a transition of leadership as President Muhammadu Buhari handed over the reins to Asiwaju Bola Ahmed Tinubu. In his Inauguration Speech, President Bola Ahmed Tinubu, GCFR, made a significant announcement to Nigeria and the world: "The Fuel Subsidy is gone!" This declaration marked the end of the fuel subsidy on Premium Motor Spirit (PMS). Subsequently, PMS prices were immediately raised nationwide, with the Nigerian National Petroleum Company (NNPC) Limited adjusting retail prices for PMS on May 31st, 2023. The new prices ranged from NGN 488 per liter to NGN 555 per liter across all states. The savings from subsidy will expectedly be redirected towards greater investments in public infrastructure, education, healthcare, and job creation, which will significantly enhance the lives of millions.
According to the Bureau of Economic Analysis, the "third" estimate reveals that the real gross domestic product (GDP) in the first quarter of 2023 grew at an annual rate of 2.0%. This marks a deceleration from the 2.6% growth observed in the previous quarter. The slowdown in real GDP during the first quarter was primarily attributed to a decline in private inventory investment and a decrease in nonresidential fixed investment. However, these were partially offset by increased consumer spending, higher exports, and a smaller decline in residential fixed investment. Additionally, imports saw an uptick. The latest projection for U.S. GDP growth in the first quarter confirms that the country is still far from entering a recession, even with a considerably stricter monetary policy and anticipated further tightening by the Fed. Nevertheless, it is crucial to acknowledge that increased interest rates can potentially affect future construction endeavors, especially in the residential and commercial domains.
Turning our attention to inflation, the United Kingdom witnessed stable consumer price inflation in May 2023, holding at 8.7%, which remained unchanged from the previous month's 13-month low. The increase in prices for air travel (31.4% compared to 12.6% in April), recreational and cultural goods and services (6.7% compared to 6.3%), and second-hand cars (3.9% compared to 1.2%) counterbalanced the decline in fuel costs (-13.1% compared to -8.9%) and the deceleration of food inflation (18.3% compared to 19.0%). Excluding volatile items such as energy, food, alcohol, and tobacco, the core inflation rate reached 7.1%, marking the highest level since March 1992.
The Chinese National Bureau of Statistics (NBS) reported that China's manufacturing sector, as indicated by the Manufacturing PMI, remained below the crucial 50-point threshold for the third consecutive month. In June, it settled at 49.0 points (compared to 48.8 points in May), underscoring a continued slowdown characterized by declining export sales (46.4 points vs. 47.2 points in May), new orders (48.6 points vs. 48.3 points in May), and purchasing activity (48.9 points vs. 49.0 points in May). Similarly, the Non-Manufacturing PMI dipped to 53.2 points in June (compared to 54.5 points in May), reflecting weak new orders, subdued external demand, and reduced employment levels during the assessed period. Overall, the Composite PMI, which combines both manufacturing and non-manufacturing sectors, experienced its third consecutive month of deceleration, reaching 52.3 points in June (compared to 52.9 points in May). This is the lowest level since December 2022 (52.2 points), reinforcing concerns about the waning momentum of China's post-COVID recovery.
Despite a reduced number of trading days in the second quarter due to holidays, various market-stimulating occurrences, including dividend payouts, corporate earnings announcements, and price adjustments led to impressive gains in the equities market. During the quarter, the NGX All-Share Index and Market Capitalization experienced a growth of 12.4% (compared to 5.82% in Q1'2023), reaching closing figures of 60,968.27 (compared to 54,232.34 in Q1'2023) and N33.198 trillion (compared to 29.544 trillion in Q1'2023) respectively. The top performers for the quarter were the oil & gas and banking indices, which recorded impressive gains of 51.9% and 42.5% respectively.
Despite the contrasting patterns seen in fixed income and the domestic equity markets during the second quarter of 2023, our flagship RSA portfolios achieved favorable results throughout the period.
FIND ABOVE DOWNLOADABLE Q2 2023 NEWSLETTER REPORT
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