Nigeria’s Private Sector Output Rises Sharply in October – PMI
Nigeria’s private sector output sees a sharp rise in October 2021 to hit a three month high, according to Stanbic IBTC Bank Purchasing Manager Index (PMI).
According to the report, the October data revealed there was a solid improvement in business conditions in Nigeria’s private sector with output, new orders and buying activity rising sharply.
It noted that staffing levels and inventories continued to rise – albeit at slower rates – while firms reduced their backlogs for the seventeenth month in a row.
However, Stanbic IBTC report release through IHS Markit indicates that panellists continued to report higher prices for materials and transportation with purchase costs rising at a record rate.
It also noted that the unfavourable exchange rate movements also exerted upward pressures on costs as the report noted that subsequently confidence moderated.
The report explains that purchasing Managers’ Index™ readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
In October 2021 however, the headline PMI improved from 52.3 in September, to 54.1 in October, indicating a sixteenth successive monthly expansion. Amid reports of improved market conditions and rising client requirements, it noted that new orders continued to expand.
“The rate of growth was robust, quickened from that seen in September and outpaced the long-run series average. Consequently, firms raised their output levels at a marked and accelerated pace”
Sector data indicated that all four sub-sectors saw faster increases in output, the PMI report added. Noting further that manufacturers registered the steepest expansion, followed by wholesale & retail, services and agriculture, respectively.
It said to support an eleventh monthly rise in output, firms raised their buying activity during the month. Purchases have now increased in each month since July 2020, with the latest uptick the second-fastest in the current sequence of growth.
Meanwhile, it was noted that backlogs fell substantially in October, with the pace of depletion amongst the quickest in the series. Firms reportedly had sufficient capacity to complete incoming new orders, it stated.
Despite this, the October PMI reports hinted that companies added to their headcounts, although the rate of growth was only modest.
Overall input prices rose substantially, which firms linked to unfavourable exchange rate movements as well as higher raw material, staff, and transportation costs. In fact, purchase cost inflation quickened to a fresh series high, it stated.
The report reads that firms opted to pass on part of the burden to clients by lifting their selling charges, which they did so at the third-quickest rate in the series history. It added that accelerating input costs led firms to protect against future price hikes by adding to their stockpiles.
Concerns surrounding prices fed through to sentiment with confidence moderating in October and registering below the average for 2021 so far. Nevertheless, it noted that firms remained hopeful that greater investment will encourage output growth in the year ahead.
Commenting on the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said: “The relaxed public health restrictions and re-opening of the economy have continued to pave way for economic recovery, as we experienced the sixteenth consecutive month of expansion with the PMI registering at 54.1 in October from 52.3 in September.
Oni said the World Bank Group and IMF revised the 2021 GDP growth forecast for Nigeria to 2.4% and 2.6% from 1.8% and 2.5%, respectively. According to Oni, this reflects increased optimism for economic recovery given the favourable oil price environment.
“We also saw some improvement in crude oil production trend. Following recent declines since Jun 21; oil production improved to 1.45 million barrels per day (mbpd) in September from 1.3mbpd recorded in August”.
Nevertheless, he noted that high inflation continues to impact costs and ultimately output prices. The inflationary pressures are partly tied to exchange rate liquidity pressures in the market.
“We expect that with the successful USD4 billion Eurobond issuance and USD3.35 billion liquidity injection from IMF special drawing rights (SDR), the CBN has a greater capacity to improve the liquidity situation in the market.
“Sure, we have already started to see progress in the FX sales to corporates, though further improvements across the various CBN interventions will be a welcome development”, Oni said. # Nigeria’s Private Sector Output Rises Sharply in October – PMI
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