Nigeria’s private sector expands for fifth straight month despite inflation pressures

Nigeria’s private sector ended the first half of 2026 on a stronger footing, offering fresh evidence that the economy is maintaining momentum despite persistent inflationary pressures and growing uncertainty ahead of the 2027 general elections.

The latest Stanbic IBTC Bank Purchasing Managers’ Index (PMI), released on Tuesday, showed business activity remained firmly in expansion territory for the fifth consecutive month. Although the headline index eased slightly to 53.4 in June from 54.1 in May, it stayed above the 50-point threshold that separates growth from contraction, signalling continued improvement in business conditions.

The June survey showed that stronger customer demand and new product launches continued to lift sales, leading businesses to increase production, purchasing activity, and employment.

New orders expanded for the fifth straight month, while firms increased staffing for a thirteenth consecutive month, the strongest pace of hiring since February. Companies also raised inventory holdings in anticipation of stronger demand over the coming months.

Business confidence also climbed to its highest level in a year, with firms citing expansion plans, advertising campaigns, and stock accumulation as reasons for expecting stronger output over the next 12 months.

The optimism comes as Nigeria enters the second half of the year with GDP growth showing signs of resilience.

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Q2 growth likely stronger than Q1

Stanbic IBTC estimates that the PMI readings are consistent with Nigeria’s economy expanding by about 3.94 percent year-on-year in the second quarter, marginally higher than the 3.89 percent growth recorded in Q1 2026.

The bank retained its 4.1 percent GDP growth forecast for 2026, expecting the non-oil economy to remain the primary growth engine despite slower expansion in the oil sector.

If realised, it would suggest Nigeria has managed to sustain economic momentum despite tighter monetary policy, elevated borrowing costs, and lingering structural constraints.

Inflation still clouds the outlook

Yet beneath the encouraging headline lies a significant concern.

Businesses continued to report steep increases in production costs during June, driven by higher fuel prices, transportation expenses, and raw material costs.

Although purchase cost inflation slowed to a four-month low, companies said they continued passing higher costs on to consumers through increased selling prices. Wage costs also accelerated as employers sought to cushion workers against the rising cost of living.

This suggests inflationary pressures remain deeply embedded in the economy despite signs that headline inflation has moderated in recent months.

For the Monetary Policy Committee, which has kept interest rates elevated to tame inflation, the report highlights the challenge of balancing price stability with sustaining economic growth.

Recovery faces familiar risks

While businesses are becoming increasingly optimistic, the report identifies several threats that could undermine the recovery in the second half of the year.

These include worsening insecurity affecting food production, renewed exchange-rate volatility, adverse weather conditions, higher fertiliser prices, and an increasingly uncertain global environment that could dampen investor sentiment and capital inflows.

Operational challenges also persist at the firm level. Businesses reported rising backlogs due to delayed customer payments, electricity shortages, and longer supplier delivery times caused largely by poor road infrastructure.

Muyiwa Oni, Head of Equity Research, West Africa at Stanbic IBTC Bank, commented: “Although the rate of growth slowed in June compared to May, Nigeria’s private sector witnessed an increase in output at the end of Q2:26 as higher demand and new product development supported an increase in sales volume for companies.

“This rising demand led to a higher workload, thereby ensuring the private sector hired new staff across three of the four sectors monitored by the survey, besides agriculture. Business confidence also rose to a 12-month high, with firms citing the ability to secure new stocks, business expansion plans, and advertising efforts as key factors making them expect an expansion in output over the next year.”

“Input prices still increased, but not up to what was witnessed during the onset of the United States/Israel – Iran war. The effect of this was a pass-through impact on output prices amid the rising cost of raw materials and transportation,” he said.