Inflation Pressure Keeps Private Sector Growth in Check –PMI
Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges.
Purchase prices rose at the fastest pace in almost two years amid exchange rate weakness and higher costs for fuel and materials.
At 48.0 in November, down from 49.1 in October, the headline PMI remained below the 50.0 no-change mark for the second month running midway through the final quarter of the year.
The index signalled a modest deterioration in business conditions and one that was the most marked since the cash crisis in the opening quarter of the year.
The overall decline in operating conditions was in large part driven by further reductions in output and new orders. Both fell for the second month running, and to greater extents than in October.
Activity decreased particularly strongly at wholesale & retail companies, while agriculture was the only sector that posted an increase in output.
The declines in output and new orders generally reflected steep price rises and the impact these had on customer demand.
Companies raised their selling prices rapidly again in November, with the rate of inflation slowing only slightly and remaining among the strongest on record.
Close to half of all respondents raised their charges during the month. The rise in selling prices was in response to higher input costs.
Purchase price inflation quickened to a near two-year high on the back of exchange rate weakness and higher costs for fuel and materials. Wages also increased as companies looked to help staff with higher living and transportation costs.
Although business activity decreased again in November, firms continued to expand their staffing levels.
Employment increased for the seventh month running, albeit modestly and to a lesser extent than in October. Purchasing activity, meanwhile, was broadly unchanged following a fall in the previous survey period.
Meanwhile, a reduction in activity meant that fewer inputs were needed than had been expected, resulting in a further build-up of stocks of purchases.
Reduced demand for inputs, prompt payments and competition among suppliers meant that vendor lead times continued to shorten.
Moreover, the rate of improvement hit a one-and-a-half-year high. Worries about the impact of inflationary pressures on demand caused business confidence to fall to the weakest since July’s record low.
That said, business investment and plans to open new plants supported optimism that output will increase over the coming year.
Speaking to the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “Business activity decreased for the second month consecutive month in November, and at a substantial pace since the cash crisis in the opening quarter of the year.
“The heightened inflationary environment appears to depress consumer demand considerably as lack of customers was a reason for the reduced output. Sharp increases in prices deterred clients from making new orders during November. As a result, new business decreased for the second consecutive month”.
Headline inflation rose to 27.33% year on year in Oct, from 26.72% in Sep according to the National Bureau of Statistics (NBS).
On a month on month basis, the headline inflation rate in Oct was 1.73%, which was 0.37 percentage points lower than the rate recorded in Sep.
Food inflation in Oct was 31.52% year on year from 30.6% in Sep, due to higher prices for assorted food items. Core inflation stood at 22.58% in Oct, with the highest increases recorded in the prices of passenger transport by road and air, medical services, and actual and imputed rentals for housing.
Nevertheless, the GDP has maintained a growth trend albeit weak at 2% levels which is similar to population growth. Nigeria’s GDP grew by 2.54% year on year in Q3:23, exceeding 2.25% in Q3:22 and 2.51% in Q2:23.
Growth in Q3:23 was driven mainly by the services sector growing by 3.99% year on year. The oil sector recorded an average daily oil production of 1.45m barrels per day (mbpd) in Q3:23, exceeding the average of 1.22 mbpd in Q2:23. On a q/q basis, the oil sector grew by 12.47% in Q3:23. Naira Devaluation Deepens Economic Crisis in Nigeria
