Nigeria’s economy is in bad shape. This is the verdict of experts, who analysed Africa’s once-biggest economy from the prism of its plummeting GDP, writes JULIANA AJAYI
In an inflationary economy like Nigeria, where the real Gross Domestic Product is expected to be lower than the nominal GDP, the latest report by the National Bureau of Statistics indicates that the second quarter growth rate was short by 1.47 per cent points from the 5.01 per cent growth recorded in Q2 2021, and increased by 0.44 per cent relative to the 3.11 per cent in Q1 2022.
GDP is an economic term used in measuring the monetary value of goods and services that are produced in a country and at a particular period, which can take a quarterly or yearly form. When calculating a country’s GDP, private and public consumption, government spending, investments, balance of trade and other costs are considered.
Inflation is also taken into account when calculating the most popular GDP measure to track output changes as opposed to changes in the cost of goods and services.
Real GDP accounts for inflation, while nominal GDP does not. However, this distinction is crucial because it explains why some GDP reports are updated.
Using current prices, nominal GDP determines the value of output during a specific quarter or year. However, inflation can raise the general level of prices, even if the total amount of goods and services produced stays the same, increasing the nominal GDP. The nominal GDP figures won’t, however, account for the price rise. In this situation, the real GDP is important.
According to NBS’s report, Nigeria’s GDP grew by 3.54 per cent year-on-year in real terms in Q2 2022. The growth rate declined from 5.01 per cent in Q2 2021 when rapid growth was recorded following the toll of the Coronavirus Disease on the economy in Q2 2020.
“The recent rising prices have adversely impacted on Q2 2022 performance. The Q2 2022 performance decreased by 1.47 per cent points from 5.01 per cent in Q2 2021 and increased by 0.44 per cent points relative to 3.11 per cent in Q1 2022. However, quarter-on-quarter, real GDP grew at -0.37 per cent in Q2 2022, reflecting lower economic activity in Q2 2022 than in the preceding quarter,” the report stated.
To compare the sizes of different countries’ economies, yearly GDP totals are frequently used. The annualised rate of growth or contraction of the GDP is more relevant to policy-makers, financial markets players and business executives. Comparing yearly and quarterly rates is made simpler as a result.
Because it tracks changes in the size of the entire economy, GDP is a crucial metric for economists and investors. In addition to serving as an all-encompassing indicator of economic health, GDP reports shed light on the variables promoting or inhibiting economic growth.
Prices of financial assets are significantly influenced by the state of the economy, as measured by changes in the GDP. Because economic growth tends to boost corporate profits and investor risk appetite, there is a positive correlation between share prices and economic growth. The relative returns on fixed income investments like bonds, however, can be negatively impacted by faster GDP growth.
While GDP reports give a thorough assessment of the state of the economy, they are more of a look in the rear view mirror than a leading economic indicator. Markets keep track of GDP reports in relation to those that came before them, to other more timely indicators, and to consensus expectations.
The value of goods and services produced can be used to calculate GDP (also known as the production or output approach). These three methods for calculating GDP should all yield the same result because economic output necessitates spending, which is then consumed.
Impact of declining GDP on Nigerians
An examination of Nigeria’s GDP performance over the past 10 years shows that there has been inconsistent growth, which is a real issue. According to World Bank data, Nigeria’s GDP in 2012 was $455.5bn, $508.69bn in 2013, $546.68bn in 2014, $486.8bn in 2015, $404.65bn in 2016, $373.75bn in 2017; $397.19bn in 2018, $448.12 in 2019, $432.29 in 2020 and $440.78 in 2021.
In a similar vein, Nigeria’s inflation rate is thought to be higher than that of most African and Sub-Saharan countries. Financial Street gathered that Nigeria’s inflation rate in 2012 was 12.23 per cent, 8.5 per cent in 2013, 8.05 per cent in 2014, 9.01 per cent in 2015, 15.7 per cent in 2016, 16.5 per cent in 2017, 12.09 per cent in 2018, 11.4 per cent in 2019, 13.25 per cent in 2020 and 16.95 per cent in 2021.
According to a Statista analysis of Nigeria’s inflation rate since 2007, a shaky and irregular inflationary rate in Nigeria was a sign of an unstable economy.
“Nigeria’s inflation has been higher than the average for African and Sub-Saharan countries for years now, and even exceeded 16 per cent in 2017 – and a real, significant decrease is nowhere in sight. The bigger problem is its unsteadiness, however: An inflation rate that is bouncing all over the place, like this one, is usually a sign of a struggling economy, causing prices to fluctuate, and unemployment and poverty to increase. Nigeria’s economy – a so-called ‘mixed economy’, which means the market economy is at least in part regulated by the state – is not entirely in bad shape, though.
“More than half of its GDP is generated by the services sector, namely telecommunications and finances, and the country derives a significant share of its revenues from oil,” the report stated.
Economic opportunities are available in a healthy economy; additionally, in an economy where the GDP growth rate is positive, there is typically low unemployment and an increase in the income of those in the labour force.
An economy with high inflation and slow GDP growth may result in more loans and lower wages for the average resident, who aspires to make a respectable living. As a result, there may be reduction in consumer spending, decline in business revenue and increase in unemployment.
GDP has a significant impact on investors’ level of confidence. Before allocating resources and assets for business purposes, various entities track the success or failure of an economy through its GDP because failing to conduct a thorough analysis could result in decreased profits and fewer stocks.
The GDP growth rates of various countries can be compared by investors to determine which offers the best prospects. Shares of businesses in countries with rapid economic growth are popular among investors.
GDP report can be used to determine which economic sectors are expanding and which are contracting. Additionally, it can encourage workers to pursue training in expanding industries.
Statista added, “When the inflation rate rises, so do prices and, consequently, banks raise their interest rates as well to cope and maintain their profit margin. Higher interest rates often cause unemployment to rise. In certain scenarios, rising prices can also mean more panicky spending and consumption among end users, causing debt and poverty.
“The extreme version of this is called hyper-inflation: A rapid increase of prices that is out of control and leads to bankruptcies en masse, devaluation of money and subsequently a currency reform, among other things.”
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