Analysts Back Nigeria Government’s Forecast of Quick Exit from Recession

Analysts on Monday described the federal government’s projection that the economy, which slipped into a recession in the third quarter of 2020, will recover latest by the first quarter of 2021 as realistic.

The analysts, in separate interviews with THISDAY, supported the position of the federal government that the recession, fuelled by Covid-19, will be short-lived.

They were reacting to the federal government’s assurance on Monday that the technical recession induced by the Covid-19 pandemic will be temporary as the economy remained on the path of recovery despite the 3.62% contraction in the third quarter of the year.

President Muhammadu Buhari also said as part of efforts to cushion the headwinds occasioned by the COVID-19-induced recession, the federal government has made provisions in the Finance Bill 2021 to exempt low-income earners from paying income tax.

He justified the federal government’s move to reduce import duty on vehicles, stressing that this will reduce the cost of transportation.

In her opening remarks at the ongoing 26th Nigerian Economic Summit (#NES26) in Abuja, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the economy remained on the path of recovery, adding that the third quarter 2020 performance has shown that the government’s response to the pandemic has positive outcomes when compared with the 6.1% contraction in the preceding quarter.

The minister projected that the country will exit recession by the first quarter of 2021.

She committed the federal government to implement the Nigerian Economic Sustainability Plan (NESP) launched to boost economic recovery amidst the impact of the COVID-19 pandemic.

She said 18 economic activities recorded positive growth in Q3 compared to 13 activities in the preceding quarter, further boosting expectations for a quicker recovery.

The minister said the Buhari administration is aware of current economic challenges faced by Nigerians and is working to reverse the trend and return the economy on the path of sustainable growth.

Ahmed said Nigeria was not the only country whose economy contracted as the recession followed a pattern among world economies, which also suffered the same fate.

Ahmed explained that the economy was improving before the pandemic aggravated its crisis, adding that the Q3 GDP results out-classed other key economies, including South Africa’s, which witnessed deeper contraction.

She said though it took the country about five months to exit 2016 recession, the current downturn may last only a month.

She said: “Let me remind us that before the impact of Covid-19, the Nigerian economy was experiencing sustained growth, which had been improving quarter-by-quarter until the second quarter of 2020, when the impact of the Covid-19 was felt,” she said.

Ahmed stated that other countries also in recession, including the United Kingdom and the United States recorded much deeper contraction than that of Nigeria.

“Nigeria is not alone in this, but I will say that Nigeria has outperformed all of these economies in terms of the record of negative growth,” she said.

According to her, South Africa, which recorded a decline of -50% compared to Nigeria’s -6.1 per cent in Q2, will also record a deeper negative growth in Q3.

Ahmed said: “While the economy has entered into recession in the third quarter, the trend of the growth suggests that this will be a short-lived recession, and indeed by the fourth or, at worst, the first quarter of 2021, the country will exit recession.

“Our expectation of a quick exit, which will be historically fast, is anchored on the several complementary fiscal, real sector and monetary interventions that have been proactively introduced by the government to forestall a far worse decline of the economy and alleviate the negative consequences of the pandemic.”

The minister added that the government has taken hard decisions at a difficult time, in the interest of the public, and urged Nigerians to encourage policy makers to do more.

She, however, said collaboration was key to returning the economy on the path of recovery.

“Since the inception of NESG 25 years ago, it has become one of the largest annual gatherings dedicated to finding solutions to the challenges facing the Nigerian economy.

“It has helped to shape government policies, reforms and sector transformation. Despite the recession, Nigeria has out-performed many economies in terms of economic growth.

“Some economic activities also demonstrated strong resilience. They include production, telecommunications, financial institutions, food and beverage manufacturing, construction services, public administration, and courier services,” she stated.

Reacting to the federal government’s forecast, an economist and associate professor at the Lagos Business School, Dr. Bongo Adi, said: “I think the recession was not because of anything they did or anything they failed to do. Anybody would see that the economy has been pretty much on autopilot. It was caused by the international oil price movement.

“However, the economy was recovering before Covid-19. By the end of next quarter or at most by Q2, we would be back to the growth path. The protest contributed as well.

“If businesses continue as they are today, we would definitely coast out of the recession.”

Also, Head of Research at United Capital, Mr. Wale Olusi, agreed that the recession will not be prolonged.

He said: “If you look at the trend, in Q2, we contracted by 6% and in Q3 that negative has reduced to 3.6%, which is almost 40 to 45% improvement in terms of the rate of growth.

“If that trend continues, and now that the economy has been opened and in Q4, oil prices are showing some signs of improvement because of the vaccine that has been discovered and there is going to be December activity by Q4.

“What I suspect is that negative would probably reduce to 1% or slightly below zero by Q4. And if you are able to sustain that trend by Q1, you are most likely to see the negative growth turn to positive although very soft at maybe 0.5 or 0.8% positive growth by Q1.”

Senior Economist/Head, Research & Strategy, Greenwich Merchant Bank, Mr. Ayodeji Ebo, predicted that the GDP will return to a growth path by Q1.

Ebo said: “It would be a major miracle to escape a negative growth rate in Q4 and we are already in November with no major policy that would take us out to that positive region within one month.

“But based on what we have seen so far, which is almost two-third of the quarter, I feel that we can’t escape the negative growth rate, but it may be mild. But if we are hoping for a positive growth rate, it should be in the first quarter of 2021 because there are some policies that need to be put in place.

“The trade policy, FX liquidity is still a major challenge for most people to import, in the manufacturing space there is really no major policy that is helping bring down the cost of doing business. I feel that it sounds optimistic, but we expect Nigeria to move to positive growth rate by Q1.”

James Emejo, Nume Ekeghe

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