EXIT FROM RECESSION: The Doubts and the Facts

“This simply implies that investment, employment and expenditure, and by extension, the GDP have grown by 0.55%. However, this statistical information was greeted by doubts and altercations by stakeholders.”

Nigerians are still in a quandary on how to describe the major economic problem that befell their nation from the second quarter (Q2) of 2016. This seemingly inscrutable phenomenon was still being misconstrued by Nigerians as recession going by the various comments they make about the economic problem on the pages of newspapers. But from the telescopic view of the economist, the catastrophe has the features of stagflation.

In a recession, there are general declines in prices, consumers’ spending, investment and employment. Businesses would be accumulating large stocks of unsold goods in their warehouses because of the drought of consumers’ spending, which would then depress prices in the economy. In other words, in economic recession, there are general recessions in every legitimate economic activity including even government spending. But in Nigeria, this was not the situation; rather we have cases where high inflation was moving in pari-pasu with high unemployment and depressed producers and consumers’ spending. Whatever was the case, however, news has it that the economy has exited the “recession” that it plunged into from the second quarter (Q2) of 2016 at a pace of 0.55% growth. This simply implies that investment, employment and expenditure, and by extension, the GDP have grown by 0.55%.

However, this statistical information was greeted by doubts and altercations by stakeholders. The argument was that if the economy has actually stepped out of recession by even as little as 0.55% growth of the GDP, the development would have been tangibly felt by the citizenry on their living standard. The proponents of this view reasoned that if the economy has attained a 0.55% growth in production, Nigerians would have been able to buy more goods and services with the same amount of money that they were hitherto shopping with; in that, a 0.55% growth in production would have meant more goods and services to bid for, which would have improved real income. But from the look of things, this has not been the case which then casts doubts on the authenticity of the data. However, it is a fact that the prices of some consumer goods have nose-dived. For instance, the price of family size (140gr) toothpaste that went up to N350 from N120 when the stagflation began, has now dropped to N300.

If we are to use the price of this item as the basis for evaluating the exit of the economy from the stagflation, it could be posited that production of consumer goods has risen which has decrease inflation of the consumer price index down by 14.29%. Real income would also have risen by this same percentage. If we should believe that this is the case across other items in the consumer price index, then a 14.29% improvement in real income should be something to celebrate about in a deeply stagflated economy riddled by high inflationary pressures. There is also a report that there was an improvement in business climate in the economy which came in the second and third quarters of 2017. The dailies published few days ago that there has been a substantial improvement in the purchase of insurance policies in the country in the second and third quarters of 2017 which surpassed that of the corresponding periods in 2016. These are clear indications that the economy is gradually coming out of the “recession”. The terms “inflation” and “stagflation” are used interchangeably here for clarity. When we are referring to changes in price, we would say that the economy is coming out of “stagflation”; and when we are referring to changes in consumer spending, we would say that the economy is out of “recession”.

By any standard, a GDP growth rate of 0.55% in a deeply receding economy, where the situation was so deplorable that the banking system had to carry as large as 47% non-performing loans in its investment portfolio, should be something to cheer. It should, actually, create in us a sanguine hope of the future prospects of the economy.

Two factors may be responsible for the low impact of the growth of the GDP on the living standard of Nigerians. The approach adopted in evaluating the GDP may have given a misleading account of the GDP growth; or cost-push inflation may have set in, in the course of increasing productivity. The GDP has two sides of measure: the income side and the product side. One side would naturally give a misleading account. The other side, however, always gives a more accurate account of the GDP as a measure of welfare. The income side measures the GDP from the values of such items as personal income, corporate income, government spending and taxes, while the product side measures the GDP from sales, inventory and shipment. Both sides do not normally agree; the discrepancy between them being the personal and corporate savings which are leakages from the national income stream and would not reflect on the income side of the GDP account.

GDP measured from the income side may give a misleading account because income (salaries, wages, interests and dividends) could be adjusted by fiat in the course of the period of review as a matter of national policy even as productivity has not increased; or inflation would have set in during the period which could distort the growth rate of the GDP. The Federal Bureau of Statistics (FBS) may have calculated the GDP from the income side which may be the reason why the impact of the 0.55% growth is not felt by the citizenry. The GDP may after all not attain the growth rate being brandished.

Secondly, the 0.55% growth of the GDP may not have impacted positively on prices, because the increase in production may have unleashed cost-push inflation in the economy since the country still depends so much on foreign exchange for production in the domestic economy. Any slight increases in production in the domestic economy would exacerbate the demand for foreign exchange which could cause the naira to depreciate, thereby creating high prices for goods and services in the domestic economy. This development would never allow prices to reflect the increase in national productivity.

In summary, it is my candid opinion that the 0.55% growth recorded by the economy and announced by the National Bureau of Statistics (NBS) may be correct. There is an observed growth in economic activities in some states which have actually embarked on aggressive investment in agriculture and manufacturing as a way of diversifying their economies and getting ready for the imminent restructuring of the country which may follow the path of fiscal federalism and resource control. This may account for the 0.55% GDP growth announced by the NBS. Some states are however still procrastinating and dozing on the drawing boards whereas a few others have signed meaningful Memorandums of Understanding (MoUs) that are expected to produce tangible results in the near future.