The manufacturing sector in Nigeria recorded the sharpest growth in business activities compared to the other three sectors surveyed, according to the latest Purchasing Managers’ Index (PMI).
The monthly PMI by Stanbic IBTC Bank showed new orders increased solidly in May, extending the current sequence of growth to six months.
“Business activity was also up, and to the largest extent since January. Growth was recorded across all four monitored sectors, with the sharpest rise in manufacturing,” the index report said.
It said overall business activity in Africa’s most populous nation rose to the highest in four months as inflationary pressures eased to the lowest in one year.
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The headline PMI index also improved to 52.1 from 51.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
“May data pointed to a pick-up in growth in the Nigerian private sector, with both output and new orders increasing at sharper rates than in April. Rates of expansion remained slower than the respective series averages, however, as high prices continued to limit demand,” authors of the report said.
It said there were further signs of inflation leveling off, with both purchase costs and selling prices rising at the slowest rates for a year.
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.
“Staffing levels were broadly unchanged again, but efforts to help existing workers with higher living costs meant that employee expenses increased at a solid and accelerated pace midway through the second quarter,” the report said.
“The improvement in customer demand seen in May encouraged companies to expand their purchasing activity. This, allied with positive expectations for future workloads also led to an increase in inventories.”
The liberalisation of the foreign exchange regime as part of measures to revive the economy led to a large devaluation of the naira. The currency measures are part of bold steps introduced by President Bola Tinubu after he took power last May to end Nigeria’s years of economic stagnation.
The reforms, which included scrapping fuel subsidies, have sent inflation to a record high and fanned a cost-of-living crisis that’s caused severe hardship for ordinary Nigerians.
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. But the pace of increase slowed for the second straight month in April.
“The April and May headline PMIs point to a slight improvement in private sector activity in the second quarter, although still underwhelming compared to Q2. We expect domestic demand to remain weak relative to the historical average, exacerbated by inflationary pressures which may likely peak in May,” Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank, said.
He said besides, interest rates at unprecedented highs will continue to have a negative passthrough impact on the non-oil sector. “However, because of an expected favourable base-effect induced oil sector’s growth, the overall economy is on course to grow by 3.51 percent year-on-year in real terms in Q2,” he added.
BusinessDay reported last month that the jumbo interest rate hikes by the Central Bank of Nigeria since February are expected to take a toll on economic growth in Q2.
The NBS’s latest GDP report showed that Africa’s most populous nation saw its Gross Domestic Product rise to 2.98 percent in real terms in Q1 from 2.3 percent in the same period of 2023.
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Compared to the previous quarter, growth slowed from 3.46 percent in Q4.
Last month, the CBN raised its monetary policy rate for the third straight time by 150 basis points to 26.25 percent in a bid to fight inflation and defend the ailing naira. That takes the total hikes since February to a combined 750 basis points.
“The year-on-year growth makes sense given that in the first quarter of last year, we were affected by the uncertainty about currency replacement, fuel queues, and elections,” Ayo Teriba, CEO of Economist Associates, said.
“However, the tightening measures by the CBN that started in February are likely to take their toll in Q2 and subsequent quarters,” he added.
