ANALYSIS OF NIGERIA MACRO-ECONOMIC INDICATORS
WRITTEN BY OLADELE ABIGAIL
To succeed, goals must be birthed. Individuals, companies, countries and even the world at large have different goals to be achieved and for each goal to be achieved, a standard of measurement must be put in place to checkmate its current activity with the set goal. Just like individuals make goals about their career, finance and many others, industries and companies also make goals about increased sale and revenue, high market share, etc. Each nation also has its own goals such as low employment rate, economic growth, balance of payment and many others. In other to checkmate its current activity with the set goal, a standard of measurement is used referred to as Macro-economic indicators.
Macro-economic indicators are statistical measure that shows the economic performance of a nation. They show the economic circumstances in a particular economy. The frequency of some macro-economic indicators could be daily, monthly, quarterly or annually. Macro-economic indicators are useful to every sector of the economy as it could help in prediction for the future in terms of performance. Analysts uses these indicators to check the current situation and predict the future health of the economy. Below are some macro-economic indicators that speaks about the economy of Nigeria.
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GDP growth rate
GDP stands for Gross Domestic Product and it is a measure of the total monetary value of all goods and services produced within a country for a period of time, say a year or a quarter. The GDP of any nation is a very important macroeconomic variable in any economy as it shows the financial health of such nation. The GDP growth rate measures the rate of change in a nation’s GDP.
For the first quarter in year 2020, a GDP growth rate of 1.87% was recorded by the Nigeria Bureau of Statistics (NBS). When compared with the first quarter of the previous year, there was a decline of about 0.23% and a decline of 0.68% when compared to the previous quarter (Q4,2019). According to the report; “In the quarter under review, aggregate GDP stood at N35,647,406.08 million in nominal terms.
This performance was higher when compared to the first quarter of 2019 which recorded N31,824,349.67 million, with a nominal growth rate of 12.01% year on year. Relative to the first quarter of 2019, the nominal growth rate was higher by 0.11% points but lower than the preceding quarter by –0.32% points, However, the non-oil sector grew by 1.55 per cent in real terms during the first quarter of 2020). This was slower by -0.93 per cent compared to the rate recorded during the same quarter of 2019, and –0.72 per cent slower than the fourth quarter of 2019.”
From the report, the oil sector contributed 9.50% to aggregate real GDP in the first quarter of 2020 while the non-oil sector contributed 90.50% to the nation’s GDP. The non-oil sector was driven mainly by information and communication (telecommunications), financial and insurance (financial institutions), agriculture (crop production), mining and quarrying (crude petroleum & natural gas), and construction.
The decline in growth rate can be attributed to the crash in oil prices, restriction of international trade and largely on the COVID-19 pandemic. The GDP growth rate is more of a central button that controls almost all other indicators and a declined growth rate could lead to lower standard of living, high unemployment rate, high inflation rate and man more. with the information above, it is important for individuals to take note of some things. For example, investors might want to move their investments to a different sector that is growing. Individuals might want to venture into profitable entrepreneurship to mitigate the risk of unemployment.
Companies might want to strategize for new ideas on how to improve revenue. It is important for every stakeholder to take up chances now as the International Monetary Fund projected that Nigeria’s economy will hit its worse recession in 2020 and the Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed that the Nigerian economy is expected to record a negative growth as the nation is heading towards an economic recession. It is however important to note that these predictions are not stated to scare but for stakeholders to cushion its effects and reduce risk.
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Inflation rate
Inflation refers to a sustained increase in the general price level of goods and services in an economy for a given period of time, say monthly quarterly or yearly. The rate of inflation is the rate at which prices of goods and services keeps increasing over time. The consequence of an inflation rate is on the purchasing power of an individual; a high inflation rate will lead to a fall in the value of money. With this, every economy seeks to achieve a low or a moderate inflation rate. The most common measure of inflation rate in Nigeria is the Consumer Price Index (CPI).
The Nigeria Bureau of Statistics (NBS) disclosed in its Consumer Price Index (CPI) report that the inflation rate increased to 12.47% in May, 2020 from 12.34% in April, 2020. The rate has been increasing slightly for the past nine months which is partly due to the border closure effect and this particular rate has the highest inflation rate since April, 2018 which is largely caused by the covid-19 pandemic
No country wants an increasing inflation rate as its effects are not favourable. An increased inflation rate could lead to wage pressure. Workers will look forward to an increase in their salaries, since their income can only purchase fewer goods and if income is not increased, cost of living will rise while standard of living drops. In some cases, as we have now, jobs won’t be secured and this could lead to a rise in crime rate. Also, there’d be an increase in cost of products as raw materials will increase and at the end, there would be a transmission that will rally round all sectors in the economy such that everyone and all sector will be affected.
One advantage of a high inflation rate is that it could reduce the value of one’s debt. However, this is achievable when there is an increase in income. While this sounds as an idea not useful enough, it is important to keep this in mind as the extra income in your hand could help in paying off your debt.
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MONETARY POLICY RATE (MPR)
The monetary policy rate is an interest rate at which the CBN lends to commercial bank, it is set by the Monetary Policy Committee (MPC), an arm of the Central Bank of Nigeria. The MPR is quite important to any economy because it influences the rate at which banks lend to companies and other borrowers. The rate is also one powerful tool the government through the central bank regulates the affairs of the economy.
The Central Bank of Nigeria reduced the Monetary Policy Rate from 13.50% to 12.50%. The new rate marks the first rate cut rate since March 2019. According to the Central Bank Governor, Godwin Emefiele, the decision of the monetary policy committee to reduce the Monetary Policy Rate was as a result of the current pandemic in the economy which has increased inflationary pressure, restricted international trade. This decision was also attributed to the decline in the manufacturing and non-manufacturing purchasing index as a result of unemployment and slow growth in production.
This information is quite useful to business owners and investors as the cost of borrowing has reduced. Some wise investors could use this opportunity to venture into short term profitable investments to make their gains, keep the profits and payback the capital when due.
Reducing the monetary policy rate to make an impact in the economy amidst this pandemic might not work out as its impacts could be too low. Prof Sheriffdeen Tella, a senior economist at Olabisi Onabanjo University, Ago-Iwoye, Ogun responded encouraged the Monetary Policy Committee to look for a more proactive way to turn the economy around. He said the CBN should rather increase incentives for expansion in the productive sector, he specifically mentioned that investment in the power sector as it can create more employment opportunities and help to grow in the economy
To be continued, anticipate for: ANALYSIS OF NIGERIA MACRO-ECONOMIC INDICATORS II
Written by Oladele Abigail
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To be continued, anticipate for: ANALYSIS OF NIGERIA MACRO-ECONOMIC INDICATORS II
About me
Oladele Abigail, an economics graduate of Bowen University who applies her passion for writing to her career path.
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To be continued, anticipate for: ANALYSIS OF NIGERIA MACRO-ECONOMIC INDICATORS II
Hi Abigail, I think this is nice and very insightful. I love the way you analyzed the indicators, and the current economic situation also, how you explained some of its effects on the economy. Thanks for this. I would like to know how i can view the part two of this.