Weak household consumption growth confirms Nigerian economy’s fragility

Although Nigeria returned to positive growth in the second quarter of 2017, after slipping into a recession in 2016, but latest Real Household Consumption and Government Consumption Expenditures Report for 2017, further reaffirms the fragility of the economy, even as continued delay in the 2018 budget implementation raises concern for consumption growth.

According to the 2017 Nigerian Gross Domestic Product Report (Expenditure and Income Approach), released yesterday (Monday) by the National Bureau of Statistics (NBS), household final consumption in 2017 fell by -0.99% from 2016 in real terms, although it increased by 9.77% nominally.

Notwithstanding that the decline in real household consumption was an improvement on the –5.71% recorded in 2016, high inflation coupled with weak purchasing power make outlook precarious.

Indeed, weak household consumption growth indicates weak recovery of the domestic economy, while the nominal growth reflects the increase in prices over the year of 2017.

This component accounted for 58.93% of real GDP in 2017.

Already, the Lagos Chamber of Commerce and Industry (LCCI), had insisted that the economy remains fragile going by recurring challenges that continue to create concerns about prospects for sustainable poverty reduction.

Specifically, the Chamber noted that continued delay in the passage of 2018 budget, high cost of operations for businesses, insecurity, unfavourable policies, among others are major challenges slowing down economic growth.

With a population growth rate pegged at three per cent yearly, the Chamber urged the government to embrace poverty reduction measures.

The latest report indicated that in the first two quarters of 2017, real household final consumption recorded both year-on-year and quarter-on-quarter growth.

However, consumption declined sharply in the third quarter (-11.88%) in real terms on a year-on-year basis.

The positive growth in consumption in the last quarter of 2017 was not enough to offset the decline in the third quarter.

Changes in inventories, often regarded as a sign of economic confidence (as firms stock up on products if they anticipate higher future demand), recorded the first growth in both real and nominal terms since 2014.

This item grew steadily in real terms through the year at 20.45% growth rate over the previous year.

This year-round growth compared to –1.2% in 2016, was mainly driven by the strong inventory increase in the first half of the year.

For manufacturers, however, rise in inventory raises concern for operators, as it is a reflection of lower purchasing power and portends job losses, and lesser private sector capacity to create jobs.

Data from the Manufacturers Association of Nigeria (MAN), showed that members’ inventory — unsold goods — totalled N321.12 billion in 2017 against N90.43 billion recorded in 2016; thus, indicating N230.77 billion or 255.19 percent increase over the period.

For government, its expenditure accounted for 4.11% of the gross domestic product (expenditure) in real terms, split between individual and collective consumption each of which accounted for 1.58% and 2.53% of GDP respectively.