Africa’s largest economy collapsed into a recession in the third quarter as oil production fell to its lowest level in four years.
Nigeria’s gross domestic product fell 3.6 percent in the three months of September from a year earlier, down from a 6.1 percent contraction in the previous quarter, Statistician General Yemi Kale said on Saturday in a report. report posted on Twitter. The median estimate of six economists in a Bloomberg survey was for a decline of 5.3%.
Oil production fell to 1.67 million barrels per day from 1.81 million barrels in the previous three months. This is the lowest since the third quarter of 2016, when the economy was in a contraction that lasted more than a year. Africa’s largest crude producer has cut production in order to fully comply with OPEC +.
While crude contributes less than 10% of Nigeria’s GDP, it accounts for around 90% of foreign exchange earnings and half of government revenue. This means that the drop in oil prices in the wake of the pandemic, which struck as the economic recovery from a 2016 crisis was still gaining ground, has emptied the coffers.
The contraction could further complicate the task of the central bank’s monetary policy committee, which begins its two-day meeting on interest rates on Monday. The panel surprised with a 100 basis point cut in September to support the economy.
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Already above target for more than five years, inflation has continued to accelerate and pressure on the naira has increased, which could force the MPC to hold on Tuesday.
The double impact of coronavirus lockdowns and the fall in the price of oil has hit the West African economy harder than most countries on the continent. This is in addition to the land borders closed since last August in an attempt to curb smuggling and stimulate local production. Instead, it weighed on Nigerian exports and the supply of some food products, adding to inflation.
“Much remains to be done to bring Nigeria back to the very modest 2% growth of the period leading up to the Covid restrictions,” Joachim MacEbong, senior analyst at SBM Intelligence, said via text message. “The land borders must be reopened and the monetary policy of the central bank must change in order to facilitate any return to positive growth.”
The International Monetary Fund predicts that Nigeria’s GDP will contract 4.3% this year, the largest drop in nearly four decades.