Manufacturing PMI at 35-month low signals lingering woe for growth-challenged Nigeria
After recording its fastest quarterly growth since 2016 recession, the coronavirus outbreak could see Nigeria’s economy slow or contract in the first quarter of 2020, as manufacturers have become less optimistic amid supply shortage and slowing demand.
Nigeria’s manufacturing Purchasing Managers’ Index (PMI), a gauge for manufacturing sentiments, slowed in March 2020 to its lowest in almost three years, according to data by the Central Bank of Nigeria (CBN).
In March, PMI stood at 51.1 index points when compared to 58.3 points in February. Although a 51.1 index point indicates an expansion in the manufacturing sector for the thirty-sixth consecutive month, it also depicts a disruption in economic activities brought about by the outbreak of COVID-19.
Also, non-manufacturing PMI fell to 49.2 points in March from 58.6 points in February, the lowest since March 2017.
The index is based upon manufacturers’ responses to set questions on core variables in their businesses. A PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding, 50 points indicates no change and below 50 points indicates that it is generally contracting.
Responses on 7 out of 14 sub-indices (transportation equipment; petroleum & coal products; furniture & related products; food, beverage & tobacco products; cement; fabricated metal products and plastics & rubber products) showed growth in those sectors above CBN’s 50 points minimum threshold.
However, electrical equipment; primary metal; non-metallic mineral products; paper products; textile, apparel, leather and footwear; printing & related support activities and chemical & pharmaceutical products subsectors, all recorded declines in the review month, CBN said.
The production level index and New Orders slowed down while Supplier Delivery, Time Employment levels and Raw material Inventories recorded their first contraction in more than 20 months.
According to a statement by CSL Stockbrokers on the PMI report, “the virus has affected global supply chains as countries across the globe have implemented a total lockdown and restricted cross border movement of people as well as goods and services. This has resulted in the shutdown of factories as manufacturers can no longer import raw materials required for production even as demand from customers remains constrained by the ‘stay at home’ policy amidst loss of jobs.”
Over the years, the PMI data has given insight to GDP growth expectations with a strong positive relationship. As a result, given the decline in the PMI statistics in March, as well as the screeching halt of economic activities, BusinessDay projects a slow GDP growth in Q1 2020.
A possible decline was further affirmed by the apex bank on Tuesday during its 2nd monetary policy committee meeting where it warned that muted outlook outbreak for the first half of the year following the coronavirus may dampen overall growth prospects for 2020, if the virus is not contained.
Moreover, the impact of the Coronavirus has grown beyond a health calamity into a global economic and social mishap limiting growth and development, as it has affected the global economy, most especially essential economic sectors like aviation, education, trade and manufacturing as critical supply chains from abroad, especially China have been disrupted.
Due to the acute shortage in supply of raw materials and goods, some companies were forced to suspend and, in some cases, shut down operations. As a result, the labour force experienced some layoffs substantiated by the drop in employment level by 9.3 percent in the manufacturing PMI, while for the non-manufacturing PMI, business activities dropped to 52.2 percent.
“The virus will lead to layoffs especially in industries vulnerable to the outbreak and this will increase the already high unemployment rate. In addition, when there is a reduction in aggregate demand of goods and services, companies will not be able to keep up with running cost and will be forced to lay off some workers” Akinloye Ayorinde, analyst at CSL Stockbrokers Limited said.
The CBN recently announced an N1.1 trillion credit support or manufacturing and healthcare businesses to cushion the economic effect of the SARs-like disease, however there are concerns on currency stability and disruption to global supply chains as the virus remains a global pandemic.
In addition, with 46 cases already, Nigeria may soon announce a lockdown which would trigger negative demand and supply shocks to the economy.