Nigeria’s Real GDP Growth in 2021 Creates Optimism for 2022

Over the years, Nigeria’s Gross Domestic Product (GDP) in real terms has been on an erratic trend growing and declining in a volatile manner, susceptible to internal and external macroeconomic shock. However, some positives has  been derived from the egregious state of the economy, being the emergence of the non-oil sector (trade, Information, and Communication Telecommunication) as major drivers of the nation’s growth.

According to statista, a German company specializing in market and consumer data. Nigeria’s GDP is bound to increase by 0.03%, with major propellants being the services and agriculture sector.

According to economic analyst Omosuyi Temitope, Nigeria’s real GDP growth exceeded its potential growth rate in the second quarter of 2021, thus portending a positive output gap. By the way, an output gap is the difference between actual and potential economic growth. Meanwhile, potential output is the level of output that guarantees sustainable employment or puts the unemployment rate at its natural rate. Potential output, unlike real GDP, is not observable and must be estimated using one or more of these methods: the HP filter, production function, multivariate filter, and dynamic stochastic general equilibrium modeling (DSGE), among others.

Using the HP filter because of its computational simplicity and reliability. Even though Nigeria’s growth in Q2 and Q3 of 2021 exceeded the estimated potential, it becomes worrisome when a nation’s potential growth is consistently on a downward trend due to prolonged periods of suboptimal economic growth. In other words, as Nigeria’s economic growth continues to stay below 3%, this could become the new normal (estimated potential growth). What a sad story for a nation with one of the fastest growing economies less than a decade ago.