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Investors left guessing as production data delays

Investors who use the Manufacturing and non-manufacturing Purchasing Managers Index (PMI) published by monetary authorities to gauge economic performance have been unable to do so as the data have not been published this year.

The PMI data released monthly is a leading economic indicator that mirrors the performance of the economy and projects GDP performance. It is computed based on survey responses from business managers, indicating changes in the level of business activities in a month.

The PMI and GDP numbers have such strong correlation such that when the PMI contracts, GDP also contracts, this also applies when the PMI expands. As such ahead of the GDP report, investors usually monitor the PMI in order to gauge economic performance, which will influence investment decisions.

This was evident in 2020 when the PMI in the third quarter confirmed Nigeria’s entry into recession as the COVID-19 pandemic took a toll on economic activities. The average PMI for Q3 2020 was 45.03 points, which was also the lowest third-quarter reading in four years. Consequently, the GDP responded with a 3.62 percent dip, having contracted by 6 percent in the second quarter.

The CBN officially released the PMI report last in December 2020.

“The unavailability of these data will make it difficult to deduce how businesses are faring. In addition to this, the economic fundamentals are quite weak with the accelerated rise of inflation numbers and unemployment data, which spell lower household income,” Jide Babatope, a Lagos-based economic analyst, said.

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With precedence showing the PMI figures forecasting GDP growth, experts believe that the marginal improvement recorded in the fourth quarter of 2020 might be a ruse occasioned by the festive season.

“Growth is usually recorded in Q4 due to the festive season, but by Q1 it reverts, however, the economy should recover by Q2 howbeit slightly. The growth will also be more theoretical than practical,” Babatope explained.

An insight on PMI by investment bank, United Capital, revealed that economic activities did not recover to their pre-COVID-19 levels in Q1.

“Overall, our forecast for GDP growth in Q1-2021 is a mild YoY expansion at best, as seen in Q4-2020, considering the base-effect of Q1-2020 (+1.9% YoY), given that the COVID-19 pandemic had not surfaced as at then,” the report stated.

David Ibidapo, an economic analyst, was of the opinion that although the PMI is an economic indicator, investors might not primarily rely on it to make investment decisions due to the available diverse investment options.

“Other than the PMI figures, there are some other economic indicators like the stock market, oil prices, inflation, which can influence investor’s decisions. From the above metrics, investors can sense possible risk and challenges, hence they opt for other investment decisions and take favourable positions,” he said.

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