Nigeria’s economic growth for the third quarter of 2023 is projected to be weaker on the back of the slow 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 Q3 next month.
According to the latest monthly PMI by Stanbic IBTC Bank, the headline index for August dipped to 50.2 from 51.7 in July. But it improved marginally to 51.1 in September. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.
“Q3 growth will come out weaker than what was recorded in the previous quarter on the back of the impact of the petrol subsidy removal and naira devaluation, which has constrained activities in the real sector of the economy,” Gbolahan Ologunro, portfolio manager at FBNQuest, said.
He said the GDP might be within the range of 1.95 percent or two percent. “The challenging economic condition witnessed during the third quarter, pretty much extended from Q2.”
Africa’s biggest economy grew marginally to 2.51 percent in Q2 from 2.31 percent in the previous quarter. But on a year-on-year basis, it slowed from 3.64 percent in the same period of last year.
“Casting the mind back to Q2, you did realise that services powered the growth in that period although agriculture picked up and industry contracted,” Israel Odubola, a Lagos-based research economist, said.
He added that for Q3, the trend will stay the same and that services will continue to lead growth; while agriculture and industry have been affected by economic challenges.
“On a balance of factors, I am of the view that growth for Q3 will hover around two percent, which is still suboptimal considering the country’s potential growth.”
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.
“I would be surprised if the economy grows more than one percent, especially with the softness in the currency market. Manufacturers and big agricultural producers are struggling with securing foreign exchange in order to get inputs for their businesses,” Ikemesit Effiong, head of research and partner at SBM Intelligence, said.
The Tinubu administration’s reforms such as the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, increased the cost of living in the country.
The removal of the fuel subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.
The floating of the naira increased the official exchange rate from N463.38/$ to N 782.68/$ as of Thursday while the parallel market rate stood at N1,150 /$.
The high cost of dollars and the implementation of a 7.5 percent value-added tax on diesel imports, which was suspended last month, pushed its pump price to as high as N1,200 per litre.
Data from the NBS shows that the continued depreciation of the naira was a major contributing factor to the country’s inflation rate which rose to an 18-year high of 26.72 percent in September from 25.80 percent in the previous month.
Inflation and the exchange rate are still going up making the cost of raw materials for industries to be expensive, according to Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry.
“Nigeria’s GDP will continue to slow until the first quarter of next year when we might likely see any significant change in direction,” he said.