Shrinking of economy: Experts warn of mass poverty, predict recession in Q3

The Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, has said that the Nigerian economy will slide into a technical recession in the third quarter of 2020.

Rewane who spoke with one of our correspondents on Tuesday also disclosed this in the FDC economic bulletin released on the country’s Gross Domestic Product report by the National Bureau of Statistics.

He said, “The Nigerian economy will slide into a technical recession in Q3’20 and is likely to see a W-shaped recovery as a second wave of COVID-19 infections could trigger a precision lockdown.

“The IMF is forecasting a negative growth of –5.4 per cent for 2020.

“The good news, however, is that the relaxation of lockdown measures and the gradual pick up in oil prices could ease the pace of economic contraction in the coming quarters.

“Economic recovery could be as early as Q2’21 if rapid steps are taken.”

Rewane noted that the contraction in economic growth meant that unemployment rate would be much higher in the coming quarters.

Also, he said, multidimensional poverty was likely to skyrocket as consumers’ battle with squeezed income and higher unemployment.

On impact on investors, he said, “The contraction in economic growth was expected by investors as indicators such as PMI already gave a direction of the overall performance of the economy.

“The FBN PMI contracted for three consecutive months before recovering to 53.9 points in June.

“Beyond the numbers, investors will be more interested in the policy response.

“On the monetary front, investors will keep a close watch on the direction of interest rates.

“Also, the quantum of fiscal catalysts in stimulating economic growth will be of keen interest to investors.”

Also speaking on the recently released GDP figures for Q2 2020, a former President, Association of National Accountants of Nigeria, Dr Sam Nzekwe, told one of our correspondents that Nigeria’s economy was already in a poor state before the outbreak of COVID-19.

Nzekwe stated that the outbreak of the virus worsened the already battered state of the Nigerian economy, adding that this was clearly reflected in the GDP figures released by the NBS.

“The figures or contraction of the economy was actually expected considering the precarious state of the economy before the outbreak of COVID-19,” he said.

Nzekwe added, “But this was made worse by the outbreak of the virus, following the high job losses, crash in oil prices and other negative effects of the virus.”

He, however, stated that what should be focused on now should be how to mitigate the lull in economic activities.

The former ANAN boss said the best option was for the government to intensify the push for economic diversification.

He said, “In diversifying the economy, government must make sure it provides a conducive environment that will attract investors. Infrastructure, security, local production, must be enhanced.”

Nzekwe noted that the agricultural sector should also receive the right support, as the industry could generate substantial foreign exchange for Nigeria when properly harnessed.

The Lagos Chamber of Commerce and Industry said the Nigerian trade sector had been in recession since the third quarter of 2018.

The Director-General, LCCI, Dr Muda Yusuf, spoke in response to GDP report released by NBS on Monday.

He said, “Trade is Nigeria’s second biggest sector by percentage contribution to output.

“We note that the sector has been in recession since Q3-2018 due to the closure of the land borders, port inefficiencies, and weak consumer spending among other structural challenges.

“These challenges coupled with the global pandemic magnified the magnitude of contraction to 16.59 per cent in Q2-2020 from -2.82 per cent reported in Q1-2020.

In the NBS report, during the second quarter of 2020, the nominal year on year growth rate of trade stood at –14.95 per cent.

This indicated a decrease of 17.97 per cent points when compared to the rate in the second quarter of 2019, and –14.67 per cent points lower than the previous quarter growth rate of –0.27 per cent.

The quarter on quarter growth rate was –15.14 per cent.

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