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Slump in consumption may derail GDP growth

By BusinessNews Staff on April 23, 2015

Following the impact of lower oil and activity-stalling elections on expenditure, analysts at Renaissance Capital have stated that there is significant downside risk to their 2015 gross domestic product (GDP) growth projection of 4.5 per cent.
In a report titled: “Nigeria GDP: How Low Could Growth Go?”, the analysts predicted that GDP growth this year could fall to 3.4 per cent as against 4.5 per cent previously projected.
According to the analysts, “When we consider the impact of low oil prices and paralysing polls on GDP by expenditure (consumption, fixed investment, net exports) in 2015, we see greater potential downside to Nigeria’s growth than our GDP-by-production derived forecast suggests.”
In particular, they stated that household consumption, which accounts for 70 per cent of GDP will slow down sharply in 2015, mainly due to negative real wage growth.
Renaissance Capital added that the proposed cut in the 2015 budget oil price to N53/b as against N77.5/b last year, means government consumption, which accounts for 8 per cent of GDP, could be slashed by one-third (assuming oil output and non-oil revenue remain flat).
They said: “Nigeria’s rebased GDP, measured via expenditure, is only available over a short period (1Q13-1Q14), implying limited history to forecast from. We believe this implies a wage-freeze (at best) for government workers. That, coupled with rising inflation, signals that negative real wage growth could deepen. In addition to a fall in demand for imported consumer goods owing to naira weakness, the consumer may also be hit by a value added tax (VAT) hike to 10 per cent (vs 5%). The wholesale and retail trade – a good proxy for consumption – last saw growth plummet in 2012 to 2.2 per cent (vs. 7.2% in 2011), largely on account of a 50 per cent petrol price hike. We expect a similar slowdown in 2015.”
The analysts added that the most common way of measuring GDP is the production approach, which shows the industry composition of growth.
“The expenditure approach is less common, because of problems with availability, timing, valuation and coverage of expenditure source data. The business registry is an important source of expenditure data as a large amount of retailing and consumer services output goes to household consumption, and a high share of building output goes to fixed investment. In Nigeria, a high share of businesses is in the informal sector and so is not covered by the business register, “they stressed.

[ThisDay]

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