Slow PMI expansion signals weak economic growth in Q3

The “go-slow” kind of expansion in the Purchasing Managers Index (PMI) reading of the manufacturing sector may be signalling slow economic growth in the third quarter.
The Central Bank of Nigeria (CBN) on Friday released the PMI reading, which shows the manufacturing sector of the economy grew at 57.1 index point in August compared to 56.8 recorded in the month of July.
A review of the manufacturing PMI since April 2018 to the current level indicates that growth has been minimal, indicating that the Gross Domestic Product might likely not be above 2 percent in the next three months.
In April, the manufacturing PMI stood at 56.9 point. It dropped by 0.4 points to 56.5 in May, rose to 57.0 in June, but declined to 56.8 in July.
“We would not be surprise to see the economy grow at a slower pace in Q3:2018 relative to Q2:2018 due to the delay in the implementation of the 2018 budget. We have not seen any drastic policy announcement to bolster economic performance in Q3:208 especially for the manufacturing sector,” said Ayodeji Ebo, managing director, Afrinvest Securities limited.
Ebo said the new CBN policy to advance loans to the manufacturing and agriculture sectors at single digit still looks very sketchy and that focus is shifting to the upcoming general elections with less economic activity by the principal actors.
In the review period, 13 out of 14 sub-sectors reported growth in manufacturing sector while 14 out of 17 sub-sectors grew in the nonmanufacturing sector, the report indicated.
Nigeria’s GDP grew at by 1.5 per cent year-on-year in real terms to N16.58 trillion in the second quarter of 2018 according to the National Bureau of Statistics (NBS).
Another six months of politicking lies ahead before the elections. Analysts anticipate a pick-up in government spending, a likely increase in the minimum wage and a rise in inflation in the months to come.
“We do not accept the argument that business investment grinds to a halt in the uncertainty. Granted it is not strong at present but the election outcome will not lead to dramatic policy changes,” analysts at FBNQuest said.
FBNQuest said unappetising growth ahead underpins its expectations of 2.2 percent and 2.5 percent GDP expansion this year and next, both short of the FGN’s forecasts and population expansion. Investment in a few business areas and a pick-up in crude output should be the secondary drivers of this modest growth. The likely rise in the minimum wage will give a welcome boost to household spending.