Sycamore Business Lab

How does GDP affect your business and the economy?

Welcome to SBL022 (Sycamore Business Lab): our periodic blog post where we address issues affecting you and your business.

On 24 February 2020, the National Bureau of Statistics (NBS) released it’s Gross Domestic Product (GDP) report for all four quarters of the year 2019, showing an annual growth rate of 2.27%. The difference in the growth rate for each quarter is as follows: 1Q — 2.10%, 2Q — 2.12%, 3Q — 2.28%, and 4Q — 2.55%. What exactly does this mean to for you as a business and the economy as a whole? Read on to find out

1. A Quick Dive into GDP

The gross domestic product (GDP) of a country is one of the main indicators used to measure the performance of a country’s economy. It can be measured
by output, expenditure, or income method. A rising GDP is a sign of a growing national economy and a falling or slow GDP growth rate leads the economy into a recession.
This indirectly has a psychological effect on businesses and individuals. Firms and Investors tend to invest more when the economic growth is strong and investments lay the foundation for economic growth in the future.

What is GDP?

According to UNICEF, Gross Domestic Product (GDP) is the sum value added by all
resident producers plus any product taxes (fewer subsidies) not included in the
valuation output.

2. GDP Today in Nigeria

GDP growth expanded at a faster pace to 2.55% from 2.28% in the preceding quarter.
This is the fastest quarterly GDP growth rate since Q4’15 and is largely driven by increased aggregate spending (what some call “Detty December”) and the minimum wage implementation. Meaning: the government increased our ability to buy, and we outdid our ability. The full-year GDP growth for 2019 is 2.27%, 0.36% higher than the average growth of 1.19% in 2018.
Fastest growing sectors that dominated the production and services segment of the economy;
– Agriculture (2.3%)
– Manufacturing (1.24%)
– ICT (10.16%)
– Finance & Insurance (20.18%).
The prolonged closure of the border along with the low-interest-rate environment
positively impacted domestic production.

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8 sectors expanded, 6 slowed while 5 contracted.
– Slowing sectors; mining (6.07%) and construction (1.31%)
– Contracting sectors; real estate (-3.45%), trade (-0.58%), and transport (-0.80%).

GDP

3. How Does GDP Affect Your Business and The Economy?

a. An increase in GDP reflects a growing economy. Basically, this means the GDP is an economic indicator that measures economic growth and performance.

b. A pointer for investments. That is, it indicates areas with high investment activity.
Take for example the recent NBS report publication on GDP, where Finance insurance was recorded to be the fastest-growing sectors in the product and service segment of the country as at the last year 2019. Thanks to the GDP report,
investors can now make investment decisions carefully.

c. Shows what sectors of the economy at the moment, getting government attention. Usually, when the government allocates more resources to a sector of the economy, it is bound to grow. And when it does, it has an equal effect on the economy’s growth and GDP rate. Following the GDP rate in this sense, can allow individuals and businesses to know what sector received more attention.

d. Reflects standard of living. GDP is used to calculate per capita income, which measures the living standard.

What are your thoughts about the GDP and its trend so far? Is your sector
among the growing or contracting ones? In any case, how do you plan to deal
with this? Do let us know in the comments section: we would love to hear from you.

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