Recent data suggests the Nigerian economy has bottomed out although the GDP shrank 0.52 percent year-on-year in the first three months of 2017. It was the smallest contraction in five quarters as the non-oil sector rose 0.72 percent, rebounding from a 0.33 percent drop in the previous period, boosted by a recovery in transportation, manufacturing and construction. The oil sector continued to decline but at a slower pace (-11.64 percent vs -17.7 percent in Q4) as average crude oil production rose by 0.07 million barrels per day to 1.83 million, first increase in 2 years. Yet, Nigeria's refineries processed 10 million barrels of crude oil in the first quarter, compared to 24 million in full 2016.
In addition, non-oil sector is recovering. After reaching record low of 41.9 in June of 2016, the manufacturing PMI rose to 51.1 in April of 2017 showing first expansion in factory activity so far this year. Also, the non-manufacturing PMI came in at 49.5 in April, pointing to the smallest contraction in services in sixteen straight months, as business activity and new orders rebounded and employment fell less.
Also, the inflation slowed to 17.24 percent in April, the lowest in nine months. The inflation rate spiked to double digits in 2016 after the naira slumped to record lows against the USD on lower oil prices and as the foreign exchange reserves dropped to 10-year low as the central bank tried to protect the currency. As a result, the central bank hiked the key rate two times by a total of 300bps to 14 percent. However, following the recovery in oil prices, foreign exchange reserves rose to USD 30.80 billion in April, the highest level since September of 2015. Thanks to higher oil revenues, the central bank has been able to boost foreign exchange supply in the economy and created a multiple exchange rate system, aiming to improve dollar supply and trading it at a more market-determined rate. As a result, the naira stabilized and the spread between the official rate and unofficial one has been narrowing.