Are we heading into a recession?

That’s one of the big questions out there. Understanding the GDP would help answer that question.

If you are a maths person:

GDP = Household Consumption (C) + Business Investment (I) + Government Spending (G) + Exports (X) – Imports (M)

Now, there are two main issues the economy is facing right now:

The decline in the price of crude oil. Prices have barely budged, even after OPEC+ announced a historic production cut.

The lockdown and its impact on regular activities.

Now, let’s unpack that equation:

Though there’s more spending on food, other things like entertainment, transport is significantly impacted. So (C) would have reduced.

Though some companies have seen higher IT expenses, not many businesses are expanding or hiring or undertaking any major projects. So (I) would have reduced.

Though there is higher government spending on COVID-19 intervention, there’s a halt on infrastructure spending as well as a sizeable part of government recurrent – travel, training. Besides, the decline in crude means lower government income. So (G) is probably down.

Our major export is crude, with lower oil prices our export is certainly down. So (X) is going to be lower.

Our major international partners are on lockdown, so most likely that there is a slowdown in import as well. So (M) is probably down.

If we add up all 5, GDP is probably lower.

However, to officially be in a recession, it needs to decline for two consecutive quarters (6-months). In Nigeria, things have been slowing down since February. Now, we are in April, how soon do you think things would be back to normal?

To avert a recession the government in some developed countries are putting money in people’s account to manage the fall in (C) – Fiscal Policy

We are also seeing central banks slash or freeze interest rate to support (I) – Monetary Policy

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