Nigeria: Economy - Investment Experts Weigh CBN's 2.86% Forecast

6 October 2021

Investment analysts have said that the Central Bank of Nigeria's (CBN) projection of economic growth at 2.86 percent for 2021 is credible only to the extent that the expansion recorded in the second quarter of the year (Q2, 2021) was driven by the base effect in 2020.

They stated that the country might record a higher growth beginning first quarter 2022 following a pick-up in fiscal spending ahead of the general election.

The CBN had effected a downward review of the economic growth forecast to 2.86 percent for 2021 from 3.15 percent earlier projected despite the expansion in the economy in the second quarter of the year. The National Bureau of Statistics (NBS) had pegged Q2'21 GDP growth at 5.01 percent.

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Victor Chiazor, Managing Director, FSL Securities, who aligned with the CBN's growth forecast, said that the economy would likely grow by 2.8 - 2.9 percent for the year 2021.

He said: "It was a base effect that was responsible for the GDP growth we saw in Q2'21. Remember that in Q2'2020, the Nigeria economy contracted by 6.1 percent. So, because of the low base effect, this Q2'21 made it look like the economy was expanding meanwhile things just came back to normal because there was a lock down at the corresponding period last year.

"We noticed that in third quarter, activity started improving and in the fourth quarter, it has continued to improve. So, the CBN must have looked at it and noticed that we might not have another five percent growth in the third quarter, and we are definitely not getting close to three or four percent in the fourth quarter. So, we are looking at average 2 and 4 percent in the remaining part of 2021."

"Therefore, we are looking at an average across the entire 2021 of 2.5 and 3 percent growth. So, I think the CBN is still within the projected GDP growth rate. I don't think we will see anything higher than three percent. Where we will be looking at is 2022, because we are not going to see that base effect support growth.

Mohamed Abu Basha; Director, Head of Macroeconomic Analysis, EFG Hermes, also projected a 2.5 percent growth rate, saying that the forecast is underpinned by an expectation of a weak recovery prospect in 2021.

He said that the discrepancies between the CBN (2.86%), FGN (3%), and IMF (2.5%) is not really huge, adding that it is normal to find such ones. "They reflect the uncertainty surrounding growth as a result of the pandemic. Our own forecasts project 2.5% real GDP growth in 2021.

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