Posted Mon, May 11, 2020 8:05 AM

Macro-Economic Outlook: COVID–19, Global Oil Price and The Nigerian Economy

The outbreak of the coronavirus pandemic with its attendant restriction on economic activities and severe impact on the oil market is set to reverse Nigeria’s growth of 2.3% achieved in 2019. Already in the first quarter of 2020, the effect of the pandemic and the slump in crude oil price is evident on Nigeria’s Purchasing Managers’ Index (PMI), which tracks the performance of the business aspect of the economy. The Manufacturing PMI, though still on the expansionary benchmark, slid to 51.1 points in March 2020 from 60.8 points recorded in December 2019. On the other hand, the non-manufacturing sector contracted as its PMI slid to 49.2 points in March 2020 from 62.1 points recorded in December 2019. This suggests a significant slowdown in economic activities in Q1’2020.

The lockdown of several states and the Federal Capital Territory (FCT) in the second quarter of the year will have an immense negative impact on GDP growth in the year. The three major GDP components - household consumption, government spending, private investment - were constrained during the lockdown effected due to the spread of coronavirus and are expected to perform poorly in full-year, relative to 2019. This is based on the high level of uncertainty over the pandemic as well as the fragility of the economy exemplified by the poor performance of major macroeconomic indicators.

In the NESG 2020 outlook report released in January, three scenarios were projected for the Nigerian economy in 2020. Our projection factored in movement in crude oil price, government capital spending and oil production volumes. Our worst-case scenario assumed an average crude oil price at US$44 per barrel in 2020; average crude oil production of 1.5 million barrels per day and capital spending of N1 trillion in the 2020 budget.

The outcome showed that GDP will decline by 1.9%; Inflation will rise to 15%; Government revenue will decline by 25%; Exchange rate will reach N400/US$1 while the unemployment rate and underemployment rate will increase to 52% in 2020. With the COVID-19 outbreak and restrictions of movement and economic activities across certain sectors, the Nigerian economy will be severely affected in 2020. This means that our earlier envisioned worst-case scenario will become even worse especially as we adjust the assumptions of crude oil price and output. Several estimates have shown that GDP would contract significantly in 2020.