Inflationary pressure took shine off economic growth in 2021

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Rising from the ashes of COVID-19 last year, the economy started on a bumpy ride. There was so much uncertainty about the unending pandemic and whether the fragile global recovery would be sustained.

Inflationary pressure took shine off economic growth in 2021Rising from the ashes of COVID-19 last year, the economy started on a bumpy ride. There was so much uncertainty about the unending pandemic and whether the fragile global recovery would be sustained.

On the domestic scene, Nigeria was neck-deep in one of its worst recessions in decades. The economy in 2020 had contracted by -6.1 per cent in the second quarter (Q2) and -3.62 the following third (Q3). With dipping revenues, the government could not do much to inspire confidence in an economy that was losing more jobs than it was creating.

Indeed, there was a consensus that the recession would be short-lived but sharp disagreement on the speed of recovery – a convoluted U- or V-shape recovery? There was fear that a prolonged shock could trigger a deeper slump or depression. But fortunately as predicted by some experts, the economy had exited recession earlier than expected. This was confirmed by quarter four (Q4) 2020 gross domestic product (GDP) data.

A fragile growthAmid concern about rising fiscal risks, the country’s output, in Q2, broke a six-year record, jumping by 5.01 per cent year-on-year (YoY) to consolidate the fragile growth that started in Q4 2020. The growth was roughly twice as high as any other previous quarterly performance in the life of the current administration.

The leg-up performance came two quarters after the country exited one of the deepest recessions in its history. The economy had caved in by -6.1 per cent and -3.62 per cent in Q2 and Q3 2020 respectively to confirm the second recession since President Muhammadu Buhari took over the country’s political leadership.

The recession ended with a near-zero positive growth – 0.11 per cent year-on-year (YoY). First quarter 2021 growth figure was also positive, though only enough to take it out of stagnation. The value of production added 0.51 per cent in real terms YoY. But there was a significant leap in the Q2 2020 data even though some economists dismissed the expansion as a fallacy of broken windows.

The growth was mainly influenced by the base effect of the deep hole of Q2 2020 when the economy was completely redundant following restriction in movement. The transport sector underscored the fallacy of the growth. Coming from a complete shutdown in the comparative quarter of 2020 during which it posted -49 per cent growth, it jumped by over almost 77 per cent in Q2 2021.

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