CBN Expects Nigeria’s Q2 2020 GDP to Slip 1.03%

By Dipo Olowookere

The Central Bank of Nigeria (CBN) has said it expects the Gross Domestic Product (GDP) of the country to contract by 1.03 per cent in the second quarter of 2020.

This information was revealed by a member of the board of directors of the CBN, Mr Mahmud Isa-Dutse, who is also a Permanent Secretary in the Federal Ministry of Finance.

Mr Isa-Dutse, who was at the last Monetary Policy Committee (MPC) of the apex bank held on July 20, 2020, in Abuja, said the fiscal authorities will have to intensify effort aimed at addressing security challenges and other headwinds constraining the country’s growth and development.

According to him, the global health crisis since the beginning of this year will make Nigeria to continue to reel from the effects, particularly as policy headroom gets tighter.

“Although the growth data for Q2 2020 is still being awaited from the National Bureau of Statistics (NBS), in-house projections by the CBN indicate that real GDP is expected to contract by -1.03 per cent in Q2 2020 which translates to a reduction of 2.9 percentage points when compared to the actual growth rate of 1.87 per cent obtained in Q1 2020.

“However, the annual real GDP predictions from multiple sources are grimmer for 2020. The World Bank and IMF project that the Nigerian economy will contract by -3.0 per cent and -5.4 per cent, respectively, in 2020, while CBN forecast suggests a possible contraction not exceeding a magnitude of -1.65 per cent in 2020,” the economist said during the MPC meeting, where he voted for the benchmark interest rate to remain at 12.50 per cent, the asymmetric corridor at +200/-500 basis points around the MPR, the liquidity ratio at 30.0 per cent and the Cash Reserve Ratio (CRR) left at CRR at 27.5 per cent.

Business Post reports that the stats office is expected to release the Q2 2020 GDP numbers next Monday morning and from various observers, the economy is expected to shrink as a result of the COVID-19 pandemic.

At the MPC meeting, Mr Isa-Dutse noted that he voted to have all the rates unchanged because it was the reasonable thing to do “to allow enough time for recent initiatives to permeate the economic system.”

According to him, a tightening policy option may dampen inflationary pressures, promote portfolio flows and reserve accretions and it may also constrain credit extension and worsen the pandemic-induced slump in output.

“A loosening stance of monetary policy on the other hand may be considered appropriate in view of the current recessionary quagmire confronting the country.

“However, the economy is already in a loosening mode given the recent policy rate cut in May 2020.

“Moreover, the huge monetary and fiscal stimulus being pumped into the economy has increased liquidity,” he said.