Nigeria’s economic growth for the first three months of 2024 is projected to be stronger compared to the same period of last year on the back of the expansion in the monthly Purchasing Managers’ Index (PMI), analysts have said.
This comes before the National Bureau of Statistics (NBS) is expected to release the country’s Gross Domestic Product (GDP) report for Q1 on Friday.
BusinessDay analysis of the monthly PMI by Stanbic IBTC Bank shows that the headline index for January rose to 54.5, the highest in 13 months from 52.7 in December. But it fell to 51.1 in February and remained unchanged in March. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
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The headline PMI for February and March last year contracted as a result of the naira redesign policy of the Central Bank of Nigeria which disrupted economic activities in Africa’s most populous nation.
This made the country’s GDP slow to 2.31 percent in Q1 from 3.11 percent in the same period of 2022 and 3.52 percent in Q4 2022, according to the NBS.
“If we look at the PMI, there’s an improvement in comparison with the first quarter of 2023. Unlike Q1 last year, where there was a cash crunch, Q1 this year didn’t experience any strain in economic activities. So, we expect growth in the non-oil sector,” Bolade Agboola, energy and consumer growth analyst at ChapelHill Denham, said.
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She added that the oil production recorded a slight improvement from Q1 last year and that it is also expected to be a positive for economic output in Q1 2024.
The PMI index, which measures the performance of the private sector, is derived from a survey of 400 companies from agriculture, manufacturing, services, construction and retail sectors.
It is a composite index based on five individual indexes with the following weights: new orders (30 percent), output (25 percent), employment (20 percent), suppliers’ delivery times (15 percent), and stock of items purchased (10 percent), with the delivery times index inverted so that it moves in a comparable direction.
“PMI is still in growth territory even though it’s a small growth. It shows the resilience of the Nigerian manufacturing and production sector in the light of the adverse economic headwinds,” Ikemesit Effiong, head of research and partner at SBM Intelligence, said.
Analysts at Vetiva Research expect the economy to expand further to 2.81 percent in Q1 due to the passthrough of foreign exchange and energy reforms to the non-oil sector.
“We downgrade our 2024 growth expectation from 3.2 percent previously to 2.92 percent. The oil sector will lead to output growth this year. At this pace, the sector could record a strong rebound in 2024 and support the ailing non-oil sector. However, key worries over the non-oil sector abound as high fuel prices and elevated FX volatility could pave the way for contractions in the manufacturing sector,” they said in a recent note.
Damilare Asimiyu, macroeconomic analyst at Afrinvest projects growth to be in the region of 2.93 percent year-on-year in Q1, supported by the further recovery in the oil economy (with about 9.51 percent year-on-year growth, aided by low base year) and a modest 2.68 percent growth in the non-oil sector.
The oil sector in the fourth quarter of last year exited recession for the first time in nearly four years to 12.1 percent from -0.85 percent in the previous quarter. The non-oil sector grew to 3.07 percent from 2.75 percent.
The economy will still grow particularly the oil sector because we have seen improvement in crude oil production compared to Q1 last year, said Ayorinde Akinloye, a Lagos-based investor relations analyst.
“And the service sectors especially the ones that contribute to the growth of the economy such telecommunication and financial still remain strong. So, I think year-on-year will see the economy grow between two-three percent mainly driven by oil and services,” he added.
Last May, President Bola Tinubu scrapped a costly but popular petrol subsidy and lifted currency controls in June, which he said was to save the country from going under.
But his actions have worsened inflation currently in double-digits and at the highest level on record. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
The removal of the petrol subsidy tripled the petrol price to above N600, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The naira suffered a near 30 percent devaluation this year following a 40 percent devaluation last June.
According to the National Bureau of Statistics, the headline inflation quickened for the 16th straight time to 33.69 percent in April, up from 33.20 percent in March.
Food inflation, which constitutes more than 50 percent of headline inflation also increased to 40.53 percent from 40.53 percent.
Rising inflation and sluggish growth in one of Africa’s biggest economies increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year, according to the World Bank.
Israel Odubola, a Lagos-based research analyst, said with the non-oil sector driving growth and the exit of the oil sector from recession if sustained, Nigeria should maintain its positive growth trend in Q1 with the number between 2.0-2.3 percent.
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