Only six subsectors of the 14 subsectors surveyed in Nigeria’s manufacturing sector showed expansion in the month of August, according to the PMI report released by the Central Bank for August.
The expanding subsectors include non-metallic mineral products; cement; plastics & rubber products; transportation equipment; chemical & pharmaceutical products and textile, apparel, leather and footwear.
Nigeria’s manufacturing Purchasing Managers’ Index (PMI) contracted by 48.5 index points in the month of August, indicative of a four consecutive months contraction.
Nonetheless, manufacturing supply delivery time remained faster in August at 53.0 points while production level, new orders, employment level and raw materials inventory continued to contract.
The first contraction was reported in May 2020 at 42.4 index points and the months after, June and July also recorded contractions of 41.1 and 44.9 indices points respectively.
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Nigeria’s manufacturing Purchasing Managers’ Index (PMI), a gauge for manufacturing point of view and therefore uses their responses to set questions on core variables in their businesses.
A PMI above 50 points shows that the manufacturing/non-manufacturing economy is generally expanding, 50 points depicts no change and below 50 points indicates that it is generally contracting.
The contraction the manufacturing sector has seen since May 2020 is closely tied to the effects of the restrictions on economic activities in a bid to curb the coronavirus pandemic.
The August manufacturing PMI of 48.5 index points is, however, an improvement from the 44.9 index points recorded in July as there has been a gradual normalisation of the economy as lockdown is being eased and the economy is opening up.
What the expansion in the six subsectors means for the Nigerian economy
Six subsectors expanding in Nigeria’s manufacturing sector for the month of August is an improvement from only two subsectors expanding in July 2020.
The continuous contraction in manufacturing PMI is beginning to fade as the index is just about 3 points away from expansion.
“It is very likely that the manufacturing PMI for September will show an expansion”, according to Boboye Olaolu”, Sub-Saharan African Economist at CSL Stockbrokers.
“Nonetheless, since PMI statistics only serves as a guidance indicator rather than an economic forecast tool, Nigeria will still go into a recession by Q3 of 2020”.
Olaolu explained that “a recession in Q3 is inevitable as we expect a steeper contraction in the oil sector due to increased compliance with OPEC+ production cut. Although OPEC+ nations have agreed to scale back production cuts from August, Nigeria is expected to compensate for lack of full compliance with the previous limit”.
“As a result, Nigeria’s oil production (excluding condensates) has been pegged at 1.359mb/d between August and September”.
We expect the snags of limited FX supply and currency pressures to continue to negatively impact activities in the manufacturing sector, mentioned Olaolu.
“Elsewhere, the bearish performance of the domestic trade and real estate sub-components – the combination of which account for 20 percent of the GDP basket is expected to drag the services sector’s performance”, Olaolu further buttressed.
“Lastly, we expect the agriculture sector to remain resilient. However, with the increasing activities of Boko Haram, we expect modest growth. Overall, we project Q3-20 and FY-20 economic contraction to settle at 4.23% and 2.66%, respectively”.
