Johnson Chukwu - Chief Executive at Cowry Asset Management

“Nigeria to Recover Quickly from IMF’s Negative Growth Rate of 5.4%”

Cowry Asset Management Limited, an investment banking firm has predicted that Nigeria will recover quickly from the International Monetary Fund’s (IMF) revised negative growth rate of 5.4%.

In its economic note, the investment firm explained that the contraction of the manufacturing Purchasing Manager Index (PMI), was in line with its earlier forecast.

The investment firm had earlier predicted that that the country’s economy would slide into recession this year.

"Nigeria to Recover Quickly from IMF’s Negative Growth Rate of 5.4%"
Johnson Chukwu – Chief Executive at Cowry Asset Management Limited

Cowry Asset said given the spate of responses by the fiscal and monetary policies authorities, the economy will recover quickly.

Analysts hinged the sufficiency of the stimulus package on this predictions, though others have criticize it as inadequate measure.

Recently released Purchasing Managers’ Index (PMI) survey report by the Central Bank of Nigeria (CBN) showed that manufacturing sector contracted in June 2020.

This was due to the fact that new orders declined faster amid partial lockdown of the economy.

Meanwhile, the non-manufacturing businesses reflected a gradual recovery as business activities picked amid improved incoming business.

Specifically, the manufacturing composite PMI contracted further to 41.1 index points in June from 42.4 in May.

This happened to be the second consecutive contraction.

The contraction in manufacturing composite PMI was due to decline in new orders index to 36.4 in June 2020 from 42.8 in May 2020.

This resulted in lower production – the production index decreased further to 36.6 from 44.5.

Producers were hit with higher costs of production.

Input price index rose to 67.2 from 61.4, but were unable to pass on costs to customers as output price index remained flat at 53.2 due to the drop in new orders.

Again, supplies of raw materials to manufacturers slowed partly due to interstate lockdown – supplier delivery time index fell to 60.9 in June from 65.2 in May.

Given the delay from suppliers end; manufacturers stocked up raw materials.

Raw materials/working-progress index moved up, to 41.0 from 37.4 – even as quantity of purchases index inched up to 35.8 from 26.3.

Cowry Asset said: “We saw stock of finished goods rise – its index rose to 43.3 in June 2020 from 39.6 in May 2020 – due to slow sales”.

Surprisingly, contraction in staffing levels at manufacturers slowed despite the lower production volume.

This came as employment index rose to 38.8 points in June 2020 compared to 24.5 points in May 2020.

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Cement sub-sector index (of the fourteen manufacturing sub-sectors) rose sharply to 56.9 points in June 2020 from 29.0 points in May 2020.

Meanwhile, the non-manufacturing sector recorded slower contraction as its composite PMI rose to 35.7 index points in May 2020 from 25.3 index points in May.

This was driven by improved business activity to 34.3 from 19.5.

Incoming business slowed due to a rise in average price of inputs, to 46.7 index points in June 2020 from 42.6 index points in May 2020.

Despite slower business activity, employment index point increased, to 37.4 from 32.0, analysts explained.

In a related development, macroeconomic updates from the fiscal and monetary authorities showed that a total of ₦107.3 billion has been disbursed to support local manufacturing and production across critical sectors.

A new fiscal gap of USD13.8 billion (₦4.97 trillion at ₦360/USD) was also anticipated for 2020 and will be funded by USD5.5 billion foreign and USD6.1 billion domestic borrowings.

While the fiscal authority revised the budget exchange rate higher to USD360/USD from ₦305/USD, CBN promised to pursue unification of currency rates around the NAFEX window.