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Exiting economic recession

The recent announcement by the National Bureau of Statistics (NBS) that Nigeria has exited recession after five consecutive quarters of contraction since the first quarter 2016 is a morale booster for the President Muhammadu Buhari administration. The good news, however, calls for cautious optimism and further hard work to bring its gains home to the people.

An economy is said to be in recession after contracting for two consecutive quarters. Nigeria’s economy slipped into recession in early 2016, less than nine months after the inception of the current administration. But, in the second quarter of 2017, according to the NBS, the nation’s Gross Domestic Product (GDP) grew by 0.55 percent (year-on-year) in real terms, indicating the emergence of the economy out of recession.

However, the recovery falls short of the output gap, an indication of the difference between the actual output of an economy and the maximum potential output of the economy, expressed as a percentage of the GDP. Nevertheless, the bureau said “this growth is 2.04 percent higher than the rate recorded in the corresponding quarter of 2016(-1.49 percent) and higher by 1.46 percent points from the rate recorded in the preceding quarter, revised to -0.91 % from -0.52%.” It further noted that quarter-on-quarter, real GDP growth was 3.23 percent. During the quarter, aggregate GDP stood at N26,986,005.20 million in nominal terms, compared to N23,547,466.91 million in Quarter 2 of 2016, resulting in a nominal GDP growth of 14.60 percent.                                

Expectedly, the NBS statement is eliciting varied reactions from Nigerians. While some accepted it as a clear testament that the economy is on the path of recovery, others chose to be cautious. A day after the announcement, the Statistician General of the Federation, Dr.Yemi Kale, in direct response to the cynicism trailing the announcement in some quarters, explained why the impact of the development would not be felt immediately by Nigerians. He said the positive impact might take long to reflect on the lives of the people due to the structure of the economy which is still largely driven by oil.                

He said recession was not about the prices of goods or employment, but purely a matter of the GDP of the country. Describing recession as just a technical word, he noted that what the bureau did was to “compare 2017 and 2016”. The important thing, he said, was for government not to relax on this modest achievement because our GDP is still in negative territory because its growth is still far below the nation’s population growth rate.            

This is why we agree with President Buhari’s summation that “until coming out of recession translates into meaningful improvement in people’s lives, our work cannot be said to be done.”                              

What this implies is that it is not yet time to clink glasses. Government should, instead, see it as an opportunity to vigorously drive economic recovery and growth. As we noted in a recent editorial, the economy appears to be turning a corner, with key indices showing positive results in recent months. For instance, the Purchasing Managers’ Index (PMI), which measures performance of the manufacturing sector, has remained positive this year. Inflation rate has maintained a steady drop in the last two quarters, even if marginal. There is a sustained restoration of oil production levels occasioned by enhanced security and stability in the Niger Delta. We also recorded growth in the non-oil sector which, within the period covered by the NBS report, grew by 0.45 percent in the second quarter of 2017, a second successive growth after rising by 0.72 percent in Q1 2017. This increase, which was not quite as strong in Q2 2016, reflects the continuing fragility of the economy.                                          

Without belittling the euphoria over our reported exit from recession, the truth is that a significant percentage of the non-oil sector’s contribution to the GDP is influenced by oil sector receipts. Therefore, growth in the oil sector will help boost the rest of the economy if government puts its hands on the plough by implementing sound policies that can ramp up sustainable growth. The mining sector is one huge untapped area that needs priority attention. Going by the NBS figures, the sector grew by 1.45 percent in Q2 2017 after nine successive quarters of contraction starting in the last quarter of 2014.

We welcome the announcement of the nation’s exit from recession. The delayed impact of this cheering development at the micro-level means that the improvement in the economy can only be sustained through improved productivity and a downward revision of interest rates. Also, being the first recession in the country in 25 years, we agree with the NBS boss that the positive impact may not be immediately felt by the people. As long as the   annual growth of the economy remains below two percent, bigger challenges lie ahead.                            

Altogether, real growth must be noticeable in key sectors of the economy that can generate jobs for the people. Again, inflation must be single digit so that small businesses can borrow with little difficulty and income earners can experience an improvement in their standard of living. Government must address fundamental issues that make sustainable growth hard to achieve. Looking forward, this can be done through direct policy intervention to consolidate the recovery process through enunciation of well thought-out fiscal and monetary policies. This is one sure way to the path of growth. We commend the managers of the economy for their efforts which facilitated the exit from recession. Let them work harder to sustain this growth. Going back into recession should not be seen as an option at all.

This post was syndicated from The Sun News. Click here to read the full text on the original website.

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