As Nigeria navigates its economic landscape, KPMG Nigeria has revised its economic forecast for the country. The recent Economic Flash notes released on August 25 provide insights into Nigeria’s economic performance and highlight the factors contributing to the adjustment in growth projections.
KPMG’s Revised Forecast and Factors Behind It
KPMG Nigeria has revised its 2023 economic growth forecast downwards to 2.65%, a reduction from the previous estimate of 2.85%. This decision is influenced by various factors that have impacted the country’s economic trajectory:
First Half GDP Performance: The gross domestic product (GDP) growth for the first half of 2023 stands at 2.41%. To achieve the previously projected 2.85% growth for the year, an average second half growth of 3.30% would be needed.
Impact of Policy Changes: The third quarter of 2023 saw significant policy changes, including subsidy removal, foreign exchange (FX) unification, and other reforms by the new administration. These changes squeezed household consumption demand, increased firms’ operating costs, and reduced private investment.
Government Investment: Limited government investment in the economy during the second and third quarters of 2023 due to the transition of administrations at the federal and state levels.
Oil Production Challenges: The country’s oil production faced further contraction in July 2023, which is expected to persist for the next two months.
Inflation Pressure: The anticipation of continued rising inflation in the third quarter of 2023 and its potential impact on real GDP growth.
KPMG’s insight report also delved into Nigeria’s recent GDP performance, stating as follows:
- The Nigerian National Bureau of Statistics (NBS) reported a 2.51% year-on-year growth in real GDP for the second quarter of 2023. This marked an improvement from 2.31% in the first quarter of 2023 and 3.54% in the second quarter of 2022.
- The services sector played a significant role, contributing to a growth of 4.42%, while the agricultural sector rebounded from a contraction in the first quarter, growing by 1.50%. However, the industrial sector shifted from growth to contraction, recording -1.94% in the second quarter.
- The oil sector’s ongoing decline persisted, with a further contraction of -13.43% in the second quarter of 2023.
Notable Comments and Insights
According to Dan Kunle, an energy industry analyst, Nigeria’s oil industry lacks sufficient investment. Addressing investment challenges and combating crude oil theft simultaneously could potentially boost production and increase earnings from the sector.
Bernard Looney, Chief Executive Officer at BP, emphasized the importance of oil and gas investments for effective energy transition. He highlighted that investing in oil and gas production could prevent abrupt price spikes while facilitating the transition to cleaner energy sources.
Predictions for the Trend
The revised economic forecast suggests a cautious outlook for Nigeria’s economic growth. As the country addresses challenges in the oil industry and implements policy changes, a proactive approach to investment and economic reforms could be pivotal in revitalizing growth.
The resilience of Nigeria’s economy will likely depend on its ability to navigate these challenges while fostering a conducive environment for both domestic and international investments.
