Nigeria’s Private Sector Growth Slowdown to 6-Month Low
Business conditions in Nigeria’s private sector improved modestly midway through the third quarter of 2021, but the rate of growth slowed to a six-month low, according to Stanbic IBTC Bank Purchasing Manager Index (PMI).
According to the report, softer upticks in output, new orders and employment contrasted with quicker expansions in held inventories as firms seek to take advantage of faster lead times and protect against any future supply shocks.
However, it noted there was a loss of momentum in demand resulted in a dip in optimism, adding that sentiment was the third-weakest in the series history.
Meanwhile, the report stated that purchase prices continued to rise sharply, although the rate of inflation softened from that seen in July.
At 52.2, a signal for an improvement, in August, down from 55.4 in July, the headline PMI registered a rate of growth that was the softest since February. PMI report added that new orders rose for the fourteenth month in succession during August which panellists linked to greater domestic demand.
“The rate of expansion eased notably from that seen in the previous survey period, however, with some firms mentioning that higher prices led to weaker sales growth”, it stated.
Consequently, the report said firms raised their output levels at a softer pace, and one which was subdued in the context of historical data.
“Those firms increasing output mentioned higher customer numbers. Of the four monitored subsectors, two recorded growth”.
It was noted that manufacturers registered the steepest uptick, followed by wholesale & retail. Meanwhile, services saw a marginal decline, while agriculture recorded a sharp contraction. To cater for higher output levels, firms raised their headcounts marginally during the month.
The PMI report noted that a further increase in staffing levels underpinned a solid reduction in outstanding business. In fact, backlogs fell at the fourth quickest rate in the series history.
Quieter road conditions and prompt payments led to shorter delivery times in August, it added.
However, it noted that quicker lead times allowed firms to add to their inventory holdings. Stocks of purchases rose at a sharp and accelerated pace which firms linked to efforts to protect against any future supply shocks.
Turning to prices, higher raw material, commodity, and staff costs as well as unfavourable exchange rate movements led to a marked uptick in input prices. Firms looked to raise selling prices in a bid to protect profit margins.
PMI report hints that sentiment moderated to the third-weakest in the series as panel comments suggested the longer-term economic implications of COVID-19 weighed on optimism.
Speaking on the result, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The Stanbic IBTC PMI moderated to 52.2 in August from 55.4 in July.
“Sure, the Q2:21 GDP numbers showed continued economic recovery posting a growth of 5.01% y/y, attributed to the low base of Q2:20 and relatively increased levels of economic activities.
“With the moderation of the PMI, although still above 50 levels, it still supports the notion that economic activities are still on an increase, albeit at a slower pace than the previous month”, he noted.
Oni added that lower optimism for growth seems to be drawn from the rise in Covid-19 infections in recent times as, since July 2021, there has been an uptick in Covid-19 positive cases.
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“Although there have been no talks on increased restriction, the surge in cases will continue to lower optimism for economic growth.
“From the PMI report, we saw that the Agricultural sector contracted in August, this can somewhat be attributed to the wrap of the planting season and continued insecurity challenges that have impacted output in the sector.
“However, we do not expect stringent public health restrictions as we saw in Q2:2020 in the near term, thus, expect the PMI to remain above 50 levels for the rest of the year.”, he said.
Nigeria’s Private Sector Growth Slowdown to 6-Month Low
