Nigeria’s Economy Misses Growth Estimate as Cash Crunch Cripples Businesses - BLOOMBERG
(Bloomberg) -- Nigeria’s economy grew at a slower-than-expected pace in the first quarter after a severe cash crunch crippled businesses and sapped consumer demand, making a case for the central bank to moderate or pause its longest phase of monetary tightening in more than a decade.
Gross domestic product in the continent’s biggest oil producer expanded 2.31% in the three months through March from a year earlier, compared with 3.52% in the prior three months, the statistics agency said Wednesday. That undershot the median estimate of 2.85% in a Bloomberg survey of six economists and the central bank’s 2.64% forecast.
The naira was little changed at 464.58 per dollar by 11:40 a.m. in Lagos, while the yield on the nation’s dollar bond maturing in 2031 rose 7 basis points to 12.65%.
Growth was crimped by a cash crisis caused by the Central Bank of Nigeria’s deadline to replace old high-denomination banknotes with new bills by Feb. 10 to mop up excess liquidity and promote electronic payments. The deadline has since been extended to the end of the year.
“The currency redesign policy imposed significant negative shocks on the economy as both aggregate demand and aggregate supply were constrained,” said Adeola Adenikinju a member of the central bank’s monetary policy committee at the rate-setting panel’s March meeting.
Snaking queues outside ATMs and bank branches became a common sight, while tasks such as riding the bus or buying food became an ordeal. Private-sector activity in February and March contracted as companies reduced output and cut jobs because of the cash crunch.
While the economy may recover in the second quarter as cash shortages have eased, the slow pickup could reinforce central bank Governor Godwin Emefiele’s view for a moderate rate hike or add impetus to Adenikinju’s call for a hold.
Adenikinju at the March MPC meeting urged the panel to wait and assess the effects of the cash shortages on the economy and prices before considering additional rate hikes. The MPC, which has raised the benchmark by 650 basis points since May 2022, to curb an inflation rate that’s been at more than double the top end of its 6% to 9% target for 11 months, will give its rate decision today.
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The non-oil economy increased 2.77% in the quarter from a year earlier, compared with 4.4% in the prior three months. The oil sector contracted for a 12th straight quarter, shrinking 4.21%, even as production increased to 1.51 million barrels per day from 1.49 million barrels a day a year earlier.
--With assistance from Simbarashe Gumbo and Robert Brand.