Purchasing Managers Index (PMI) reading for September, which shows slower expansion in manufacturing activity in the country, has justified the fears expressed by the Central Bank of Nigeria (CBN) about the economy.
The PMI of the manufacturing sector of the economy released by the CBN on Tuesday stood at 56.2 index points in September, represents a 0.9 index points lower expansion figure when compared to the 57.1 index points reported in August 2018.
The alternative PMI figure released by FBNQuest yesterday also show a slower expansion rate PMI declined to 53.7 index point in September from 54.8 index point in August.
A composite PMI above 50 points indicates that the manufacturing/non-
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Godwin Emefiele, governor of the CBN, had at the last Monetary Policy Committee (MPC) meeting in September expressed fears that the exit from recession may be under threat following the slowdown in economic growth to 1.5 percent in the second quarter of 2018 from the 1.90 percent growth recorded in the first quarter.
Emefiele and other members of the Monetary Policy Committee (MPC) which decided to keep interest rate unchanged at 14 percent in the third meeting this year, identified rising inflation and pressure on external reserves created by capital flow reversal as the current challenges to growth.
They noted that inflationary pressures have started rebuilding and capital flow reversals have intensified as shown by the bearish trend in the equities market even though the exchange rate remains very stable.
Nigeria’s inflation rate year-on-year increased to 11.23 percent in August, 2018 from 11.14 percent recorded in July according to the National Bureau of Statistics (NBS).
The CBN’s PMI figures revealed that production level, new orders, employment level and inventories grew at a slower rate; but supplier delivery time grew at a faster rate in September 2018.
Economic analysts told BusinessDay yesterday that the slower growth in PMI is a signal that the growth in economic output (GDP) in the third quarter (Q3) will be weak.
“The PMI data is the most credible data of what Q3 GDP might look like and with the most recently released data, there is an increasing likelihood that the headline might come out below expectation. Nonetheless, since it is above 50, it shows the economy is still expanding but at a slower pace,”Rafiq Raji, the chief economist at Macroafricaintel Investment told BusienssDay.
“We would not be surprised 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,” Ayodeji Ebo, managing director, Afrinvest Securities limited had earlier said.
Also responding to the report Ayo Akinwunmi, Head of Research at FSDH Merchant bank said “So for me it still what we have been discussing, the slow expansion rate slows down the activity in the country.”
However, 10 out of 14 sub-sectors surveyed by the CBN, reported growth in the review month compared to the 13 sub-sectors that reported growth in the previous month.
“The manufacturing sector continues to enjoy the benefits of the CBN’s exchange-rate reforms since greater foreign exchange rate availability translates directly into increased access to imported inputs. However, demand remains soft. Although, there was a pickup in output, we note that reduced cash circulation had a negative impact on sales”, FBNQuest analysts said.
