Oil production: KPMG revises Nigeria 2023 economic growth forecast downward to 2.65%
KPMG Nigeria, a multinational consulting firm, has revised Nigeria’s economic growth forecast for 2023 further downward to 2.65 per cent from the earlier promised 2.85 per cent, based on several factors, including the likelihood of a contraction in the country’s oil production in August and September, as revealed in July 2023, raising concerns about the country’s economic future.
According to KPMG the first Half (H1) 2023 Gross Domestic Product, (GDP) currently stands at 2.42 per cent and will require an average growth in H2 2023 of 3.30 per cent to record 2.85 per cent.
KPMG said, “The Q3 2023 is the quarter where the impact of subsidy removal, Foreign exchange unification and other reforms of the new administration had major impact on squeezing household consumption demand and firms’ costs of operations.”
The firm also disclosed that the impact of subsidy removal and FX volatility has also reduced private investment in the country during the period in view.
It further added that its downward adjustment in the country’s growth was also premised on the muted government investment in the economy in Q2 and Q3 2023, even as the new administrations at the Federal and State level are still settling down for governance in Q3, 2023.
The Nigerian National Bureau of Statistics (NBS) in its recent report revealed that the oil sector contracted since Q1, 2020 further declining by -13.43 per cent in Q2,2023 and -11.77 per cent in Q2, 2023.
KPMG further emphasised that Nigeria’s Q2, 2023 GDP result was in line with its earlier downgrade revision of 2023 GDP to 2.85 per cent.
It said that the impact of subsidy removal was evident in the biggest contraction in road transportation GDP since the news GDP series.
It said, “Though subsidy was only removed in June 2023, representing a one month impact of the three months of the quarter, road transport GDP contracted by -55.14 per cent in Q2, 23, which is the biggest contraction in road transport GDP in history.
“This contradicts the muted results recorded with respect to inflation for that same month which according to NBS was not expected to fully reflect on the Consumers Price Index through methodologically,” the professional firm noted.
KPMG disclosed that Nigeria’s oil production has started in Q3, 2023 with a further contraction in July 2023, revealing that if this trend continues for the remaining months of Q3, 23, the country will witness a situation where non-oil sector growth and oil sector growth will both underperform.
KPMG said that with rising inflation in the first month of Q3, 2023, and expectation of further increases in inflation for the rest of the year, the pressure on nominal to real GDP will be higher, thereby curtailing higher real GDP growth in Q3,2023.
Tinubu’s administration needs to urgently implement energy industry policies that attract more investment and kick-start existing ones, with the overall objective of driving economic growth.
The new government may need to address structural issues in the economy, such as corruption, poor infrastructure, and a weak business environment, to improve the country’s long-term growth prospects.
