Nigeria’s Economy May Slump Back to Recession, If… – Analysts


China’s Trade Surplus Rises y-o-y to USD45.06 billion in July 2019 on Increase Exports…
In the just concluded week, China’s reported trade data for July 2019 which was released by the General Administration of Customs of the People’s Republic of China showed that its trade surplus grew to USD45.06 billion in the review month, recording a 63.91% year-on-year (y-o-y) increase, from USD27.49 billion it printed in July 2018.

The growth in the Asian economic giant’s trade surplus was driven by a 3.3% y-o-y rise in exports to USD221.5 billion and a 5.6% y-o-y decline in imports to USD176.40 billion in July 2019.

According to the General Customs data, the increase in outbound shipments was on the back of boost in refined fuel sales which surged by 20% y-o-y as recovery in profit margins prompted refiners to increase output.

In addition, exports of rare earth – the group of 17 chemical elements used in consumer electronics and military equipment – rose by 15.8% to 5,243 tonnes in the year under review.

Supply of rare earth materials to the international market still increased despite worries of over supply from China (as top poducer of the materials) amid its trade war with the US.

On the other hand, imports into the second largest economy dropped as inbound shipments from US, South Korea and Japan plunged y-o-y by 19.1%, 20.1% and 13.0% respectively.

On a year to date basis, China’s trade surplus soared to USD225.67 billion in July 2019 from USD162.75 billion recorded in July 2018; of which the Asian giant’s trade surplus with the US totaled USD168.50 billion.

According to a senior economist at Consultancy Capital Economics, Julian Evan-Pritchard, the better-than-expected trade surplus number might not last given the anticipated US tariffs.

Amid the trade tensions between US and China, US President, Donald Trump threatened to slam 10% tariffs on USD300 billion of Chinese exports into its country beginning from September 1, 2019.

This will be in addition to the already slammed 25% tariffs on USD250 billion worth of the Asian country’s goods entering into United States.

Else where, the price of crude oil in the international market continued to decrease as Nigeria sweet crude, bonny light, hit USD57.21 per barrel (pb) on Thursday, August 8, 2019, a 12.81% decrease from USD64.54 pb where it traded a week ago.

The decline in crude oil price was amid worries over slowing global growth, accompanied by escalated trade conflict between the U.S. and China which continue to have a negative effect on demand for crude oil given the two countries status as the world major buyers of crude oil.

According to Organisation of the Petroleum Exporting Countries’ (OPECs) Monthly Oil Market Report for July 2019, Nigeria’s average crude oil production rose m-o-m by 7.47% to 1.855 million barrels per day (mbpd) in June 2019 from 1.726 mbpd in May 2019.

Amid the decline in crude oil price, Nigeria’s External reserves fell w-o-w by 0.47% to USD44.69 billion on Wednesday, August 7, 2019 from USD44.90 billion on Wednesday, July 31, 2019.

Also, Naira depreciated w-o-w by 0.45% to N363.31/USD on Thursday, August 8, 2019 from N361.68/USD it closed on July 31, 2019. Meanwhile, the 2019 budget, which was signed by President Muhammadu Buhari in May, was based on crude oil production of 2.3 mbpd (including condensates) with an oil benchmark price of USD60.00per barrel which the Federal Executive Council (FEC) increased from USD50.50 pb.

Following President Trump’s latest threat of imposing 10% tariffs on additional USD300 billion worth of China’s imports into US and the devaluation of the Yuan against the US dollar to spur exports by China, we expect the trade tensions between the two countries to further escalate and have a resultant negative impact on the global demand for crude oil which could further depress the price of crude oil.

Hence, given Nigeria’s over-dependence on crude oil, we expect the fiscal and monetary authorities to be proactive and quickly regig plans and policies in a manner that will brace the country up for the impending decline in crude oil price.

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