Financial services contributed to more than half of Nigeria's Q1 2024 GDP growth rate and will keep the economy afloat through 2025

Outperformance of finance and ICT belies a downturn in the economy

GDP growth slowed to 2.8% YOY in Q1 2024 from 3.2% YOY in Q4 2023, driven by weaker non-oil activity, specifically in agriculture and industry. Services continued to grow at a constant rate of around 4% YOY in Q1 2024, driven by finance and ICT. GDP growth will decelerate in the coming quarters of 2024, as naira volatility and interest rate hikes suppress consumer spending and investment growth, resulting in full-year GDP growth of 2.5% YOY. In 2025, growth will accelerate to 2.8% YOY, as monetary and financial conditions stabilize, which will spur a gradual recovery in consumer and private sector confidence. 

Business Implications

Multinationals should ensure their demand assumptions reflect an anticipated slowdown in GDP growth, while taking into account divergence in performance across industries. Companies should prepare for heightened financial and operational costs amid interest rate hikes, naira volatility and weakness, and persistent insecurity. Maintaining agile pricing strategies, strategically managing inventory amid customer demand and currency uncertainty, and spending on marketing and promotions will be crucial to help companies weather a slowdown in demand growth. Customer segmentation will be key to raising performance by focusing on high-income households and resilient industries such as financial services, ICT, and arts and media.

What is driving the service sector’s consistent outperformance?

The financial service and ICT sectors are the two main sub-sectors propelling services, with respective growth rates of 31.2% YOY and 5.43% YOY in Q1 2024. The financial service sector has benefited from interest rate hikes, which will allow it to expand further in the coming quarters. Moreover, Nigeria’s formidable fintech scene (which includes high-growth digital payment firms such as Flutterwave and Moniepoint) will continue to propel growth in the ICT sector driven by funding for fintech startups, demand for payment solutions, and a young population. Financial services and ICT will be the main drivers of both services and headline growth for the rest of 2024, which will conceal an otherwise weak growth outlook in sectors such as construction, manufacturing, trade, and real estate.

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