Tag Archives: GDP

Nigeria’s Economic Magic Trick

On April 6th, something fascinating happened. As if by a work of magic, Nigeria grew its GDP by 89% and suddenly became the largest economy in Africa. With this clever sleight of hand, Nigeria’s economy increased its worth from $263 to  $510 billion. South Africa, with a GDP of $370 billion has lost the top economic standing in Africa. How did Nigeria pull this off? Did they really construct over $200 billion of goods over night? Or did they rely on the types of magic tricks as displayed below? The actual reason for the phenomenon lies somewhere between reality and illusion. Let me go further into detail and explain what happened.

michael-scott-magic-tricks_2133841_GIFSoup.com
Nigeria’s Finance Minister right now

With a large population of 170 million people, Nigeria has been growing at a rapid pace of almost 7% over the past decade. Previously, the nation’s abundance in oil and other natural resources had been the main drivers of Nigerian growth. However, in recent years, Nigeria has drawn significant foreign investments and has witnessed thee emergence of new consumer-oriented sectors such as telecommunications, entertainment and banking. 20 years ago, Nigeria had only one phone operator and 300,000 telephone lines. Today, Nigeria has an entire telecommunication industry with over 120 million subscribers. Similarly, Nollywood, the Nigerian film industry, now produces the most movies in the world and makes up 1.4% of the country’s GDP. Finally, Nigeria’s services sector has grown by over 240% since 1990.

nigeria gdp chart

The reason for Nigeria’s overnight economic expansion is due to the way the Nigerian GDP was previously measured. For the past 24 years, Nigeria’s GDP calculation did not give much weight to these newly developed sectors. The new system of GDP calculation now incorporates the revenues from Nigeria’s new business sectors which had been overlooked before. This process of revising GDP calculation is referred to as rebasing. The IMF advises countries to go through this process every five years. However, many African countries such as Nigeria do not rebase on a consistent basis. International aid donors urge African nations to rebase regularly so that they can make more precise decisions regarding foreign aid.

nigeria GDP
Source: The Economist

The stastical illusion has not changed anything in reality . The important problems in the Nigerian economy still remain. Even though Nigeria’s economy is large, its people are still poor. Nigeria ranks 153rd out of 187 countries in the United Nation’s Human Development Index, unemployment is over 20% and GDP per capita is only $2700.Given that GDP per capita figure, South Africans are still twice as rich as Nigerians. Additionally, despite the emergence of new industries, the country still draws a majority of its revenues from oil and gas exports. Once again in contrast to South Africa, Nigeria has an underdeveloped infrastructure and has outbreaks of violence in certain parts of the country.

Goodluck Jonathan is the President of Nigeria. Despite having one of the funniest names I have ever heard, still has a lot of work to do. Yes, Nigeria has greatly grown over the past decade and has been the posterchild of rapidly growing African nations.  But in order to lift Nigeria to the upper echelons of nations, President Jonathan should seek to reduce corruption, incrase the efficiency of tax collection and reduce the bureacratic barriers to doing business in the country. As the cradle of mankind, Africa needs more nations such as Nigeria to rise above and help their people live in prosperity and security, something that they have been desperately seeking for many years.

“The work of Nigeria is not complete for as long as there is any one Nigerian who goes to bed on an empty stomach”
– Ibrahim Babangida

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Economy in Digits – 02/01/2014

In the past couple of weeks I didn’t see any significant economic indicators in the news. However, we got a lot of data over last week.

United States

Driven by the fastest consumer spending in the last three years and a rise in exports, US GDP increased by 3.2% year-over-year in the 4th quarter.The calculations also showed a 1.9% increase in GDP across all of 2013, compared to 2.8% the previous year. The 2013 figures showed that a significant decrease in government spending due to the shutdown in October had dragged GDP figures down when compared to last year. That was of course accompanied by the extreme cold temperatures in the winter which also hampered the economy. However, the numbers are still positive and despite the continuation of tapering by the FED, the US still remains the safest economic harbor right now. As we’ll discuss soon, Emerging Markets are not doing too well right now.

united-states-gdp-growthTurkey and India

Both the Turkish Central Bank and the Indian Central Bank resorted to drastic interest rate hikes. In Turkey, a corruption probe against government officials had led to the resignation of various cabinet ministers. The following levels saw the Turkish Lira lose significant value and brought the Turkish Lira/US Dollar spot rate to unprecedented levels. To stop the devaluation, the Turkish Central Bank sold parts of its foreign reserves but it was to no avail. Finally, the Central Bank had enough and they raised interest rates sharply. The benchmark interest rate was raised from 4.5% to 10% and the over night lending rate was hiked from 7.5% to 12%. Following the rate hike, the Turkish Lira gained 4% against the US dollar. However, the crisis is yet to be averted. Even though the Lira gained in value after the Central Bank’s decision, the sell off creeped in again. This decision is surely to slow Turkish economic growth and that could prove crucial to determining the outcome of the upcoming local elections in March.

tlusd

On to India, another country that required a rate hike this past week. As I stated in an earlier post, India is struggling with high inflation and lackluster growth and just like Turkey, they will be having elections this year. However, the Indian Central Bank let everyone know that they are serious about battling inflation when they increased the repo rate by a quarter point to 8% and announced that they plan to reduce the inflation rate to 6% by 2016. As you can see from the graph below, the latest inflation figure in India is over 11%.

indiainflationGreat Britain

Another GDP figure came from Great Britain as GDP growth was announced to be 0.7% in the 4th quarter of 2013 and by 1.9% in 2013 overall.That figure might seem as slow as Shaq running down a basketball court however that is the fastest growing quarter that Great Britain has had since the 2008 economic crisis. The main force behind the growth was the services and the manufacturing sectors and evidences that slowly, eventually and oh so gradually, the British economy is picking itself up.

Historical Data Chart

EU

The Eurozone had been battling a rather unfamiliar problem, deflation, which is the opposite of inflation. To battle the deflation, the European Central Bank had decided to lower interest rates last month. However, we got new inflation figures from the Eurozone which don’t look so bright. Consumer price inflation across the Eurozone fell from 0.8% in December to 0.7% in January.. Even though the worst of the European debt crisis is behind us, deflation means that firms and individuals are more likely to hold off on spending money until the future, which could take a toll on growth. Even though I see it to be unlikely, European Central Bank officials stated that if matters get worse, they could resort to negative deposit rates for banks’ deposits at the European Central Bank.

Historical Data Chart

That was what made economic headlines this week. Stay tuned for more economic news in Economy in Digits in the following weeks.

“Economics is extremely useful as a form of employment for economists.”
-John Kenneth Galbraith

The Economy in Digits – 12/28/2013

Welcome to this week’s edition of the Economy in Digits. Without further adieu, here are the economic highlights from the week ending December 28th.

United States

Pending home sales, which measures contracts to purchase previously owned sales, rose less than forecast in the month of November. Pending home sales rose only 0.2% whereas economists had predicted a rise of 1%. This indicates that rising borrowing costs due to the FED tapering its asset purchases is resulting in a slowdown in the residential real estate market. When compared with the previous year, pending home sales have fallen 4%. The graph below displays an aggregate of 30 year mortgage rates in the United States. As you can see, mortgage rates dropped after 2008 but have recently been picking up.

fredgraph (3)

Since the start of the financial crisis, the US government and the FED had been artificially supporting the housing market. For example, the FED’s Quantitative Easing program had been purchasing $40 billion of mortgage backed securities since last year, leading to an artificial decrease in mortgage rates. The recent indicators displaying a slowdown in the housing sector points to the fact that the housing market is returning to its fundamental levels instead of being inflated by external factors.

Japan

In response to Prime Minister Shinzo Abe’s expansionary monetary and fiscal policy, Japanese inflation (measured by the Consumer Price Index) increased by 1.2% over the previous year, which is the largest increase over the last 5 years. In an effort to bring Japan out of a two decade long era of slow growth and deflation, Shinzo Abe promised to stimulate the Japanese economy and increase inflation with massive fiscal and monetary easing. The recent inflation figure indicates that Abenomics, as some have labeled this policy, seems to be working. The graph below depicts Japanese CPI since 2010.

japan-consumer-price-index-cpi

But as I had stated in the previous Economy in Digits post, not everything is clear sailing for the land of the rising sun yet. Monetary and fiscal stimulus devalues a nation’s currency. This usually has the effect of increasing exports. But because Japan imports a majority of its energy, devaluing its currency has the effect of increasing the value of its imports too. Additionally, the Japanese government is expected to implement a tax hike later this year which could weaken demand and bring inflation back down again.

China

Ever since the Chinese Communist Party first started opening up China’s economy to the world and adopting free market principles under the leadership of Deng Xiapoing in the 1908s, China had been experiencing extremely rapid growth,  As you can see from the graph below GDP growth had been almost 10% on average over the last decade. But over the past few years, as China enters the final stages of its transformation from a rural to an urban economy and implements the reforms to become a middle class nation, its economy has started to slow down. With that in mind, the Chinese government announced last Tuesday that their target GDP growth for 2014 would be 7.5%. As you can see from the graph below, if you exclude the crisis of 2008, 7.5% is lower than the growth numbers that China used to produce in the past. However, Chinese President Xi Jinping has promised to continue to reform the Chinese economy and the Chinese society. In line with that promise, Chinese officials have stated that they are confident that maintaining a 7.5% growth rate will help keep creating more jobs, while providing room to deepen reforms as well.

china-gdp-growth-annual

That is all for this week ladies and gentlemen. I was late in posting this week’s Economy in Digits due to an exam I had to take on Sunday. But I can assure you that it won’t happen again. So tune in next Saturday for the upcoming week’s economic indicators.

“The economy isn’t some vengeful being that takes things away from us. The economy is just made up of people, and people have just lost their faith in it. What people really should be doing is spending more. Spending is fine. People should just go outside. People should just go outside. They should buy the things they need for their friends and family”
Kyle Broflowski

The Economy in Digits – 12/21/2013

Welcome to Economy in Digits, my new weekly segment that briefly covers significant economic indicators released in the past 7 days. Initially, I didn’t want to write a post for every single indicator that makes the headlines. That would mean that I would have to bombard this blog with post after post of statistical data, which is not why I created this blog. I created it in order to inform my readers about significant global issues AND also keep it interesting and enjoyable at the same time. However, economic indicators are significant and sometimes we receive data that hints where a nation’s economy is headed. Thus, I decided to sum up indicators released in the prior week in a single post.

United States

In the United States, November industrial production, which measures output in the utilities, mining and manufacturing sectors rose 1.1% from the prior month. That was the biggest increase over the last year and brought total US industrial output to its pre-recession levels. The manufacturing sector increase 2.9% from a year earlier thank to rising automobile sales. Meanwhile, the utilities sector expanded by 3.9% due to increased demand in the winter for heating and output in the mining sector increased by 1.7% as several oil rigs that were closed last month due to tropical storm Karen reopened. The graph below depicts total US industrial output for the last 10 years.

fredgraph

Again in the United States, 3rd quarter GDP growth rates, was revised upward from its initial figure of 3.6% to 4.1% from a year earlier.The revision came mostly due to the adjusted increase in consumer purchases. The graph below depicts quarterly US GDP growth rate over the past 10 years.

fredgraph (1)

Both the industrial production and the revised GDP figures prove that the American economy is hastening on the road to recovery. The fact that these figures are coming out shortly after a period of fiscal instability is also impressive. However, we also have to see the effects tapering of QE by the FED will have on the economy.

Japan

Despite the push by Prime Minister Shinzo Abe to devalue the Yen and drive exports up, Japan’s trade deficit increased as exports fell by 0.2% and imports rose by 3.5% month on month. When a nation devalues its currency, its exports are supposed to increase and its imports are supposed to decrease. However, there are two possible reasons for Japan’s widening trade deficit. The first reason is due to a concept in economics called the J-Curve, which states that devaluing a national currency will initially increase the trade deficit because trade contracts set in place cannot be adjusted during the short run. Once old contracts are expired or cancelled, new trade agreements will be made given the devalued currency. Another possible reason for Japan’s trade deficit is that Japan closed almost all of its nuclear power plants following the Fukushima disaster in 2011. Thus, Japan imports almost all of its energy now. A devalued currency means that Japan must now pay more to import its energy from abroad.

United Kingdom

In the UK, inflation fell to 2.1% from 2.2% last month due to steady food and energy prices, which bring the figure to its lowest since November 2009. Just two days later, it was also announced that the unemployment figure in the third quarter fell to 7.4%, down from 7.7% in the second quarter. Following the recession, the Bank of England promised to leave interest rates at record low levels until unemployment dropped to 7% and promised to bring inflation down to 2%. Over the past few years, it was failing to achieve both targets. But these two indicators prove that the UK economy is improving and is nearing its twin targets. If inflation and growth follow the same trajectory, we could see a hike in interest rates by the BOE sometime in 2014.

India

In India, wholesale inflation increased by 7.52% from a year earlier, compared to a 7% increase in October. The expected rate by a survey of economists was 7%. Inflation is becoming a serious issue in India where consumer prices also increased by 11%  last month from a year earlier. An even bigger problem is that inflation is being coupled with a slowdown in growth. The RBI predicts India’s economy will expand 5 percent in the 12 months through March 31st, the same pace as the last fiscal year, which was the weakest in a decade. If the RBI hikes interest rates to battle inflation, they will reduce the GDP growth rate even further. High inflation and weak growth can only mean one thing. STAGFLATION

That is all for this week. Tune in next Saturday for the upcoming week’s economic indicators.

Economics is a subject that does not greatly respect one’s wishes
-Nikita Khrushchev