PMI: Economic Recoveries in Nigeria, Others Could Disappoint in Q3

PMI: Economic Recoveries in Nigeria, Others Could Disappoint in Q3

Given the latest data from the Nigeria’s central bank purchasing managers index (PMI), analysts said economic recoveries could disappoint against expectation in the third quarter of 2020.

Some pundits predicted a quick economic recovery as they expect performance to be strengthened in the next quarter as global economic lockdowns ease significantly.

Cowry Assets Limited, Chapel Hill Denham among others have noted that worst seems to be over as economic activities resume.PMI: Economic Recoveries in Nigeria, Others Could Disappoint in Q3

The expectation is further supported with opening of airspace for international flights and resultant plan of the CBN to resume foreign exchange sales.

In the first half of 2020, Nigerian big lenders buck trend as they defied COVID-19 induced bearish estimate.

Top five banks raised earnings 4% to about N355 billion in the first half.

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However, the same cannot be said of operators in the fast moving consumers segment, as they counted losses.

While banks recorded significant foreign exchange gains which thus bolstered earnings performance, manufacturers with foreign currencies exposure reported losses.

Interpreting the CBN’s PMI, United Capital discussed in its economic note what PMI tells about recoveries among economic giants in Africa.

Analysts stated that in H1-2020, the economic performance of all the African countries under United Capital coverage deteriorated from that of an expansion to a broad based contraction/slowdown.

United Capital attributes this to the global outbreak of the COVID-19 pandemic as well as the associated lockdown measures implemented to curb its spread exacerbated other pre-existing vulnerabilities and dragged economic activities across the region.

So far in H2-2020, the investment said recovery appears to be underway as governments across the continent have begun to gradually ease lockdown measures, even as the active cases of COVID-19 continue to rise.

This sign of recovery in economic activities is confirmed by the few monthly Purchasing Managers’ Index (PMI) readings seen across the region.

Notably, while the contraction/slowdown were broad-based in H1-2020 (especially in Q2-2020, which marked the peak of lockdown in most countries), the rate of recovery as indicated by PMI data have shown a considerable disparity.

Specifically, indications are that economic recoveries among the regional giants Nigeria, South Africa, and Egypt, could disappoint in Q3-2020E, United Capital stated.

On the other hand, the investment firm reckoned that it could see strong GDP recoveries in Kenya and Uganda where PMI has crossed the 50.0pts expansionary level since July-2020.

Also, Ghana’s PMI suggests that economic activity has stabilized since June-2020 and might further improve in coming months.

Purchasing Managers’ Index (PMI) survey report by Central Bank of Nigeria (CBN) showed that manufacturing and non-manufacturing sectors continued the gradual recovery from contractions as new orders increased.

Specifically, the manufacturing composite PMI printed slower contraction to 48.5 points in August from 44.9 in July and this was the fourth consecutive contraction as new orders index increased to 49.2 in August 2020 from 43.10 in July 2020.

This resulted in higher production as the production index rose to 49.2 (from 44.7). Producers’ costs of production fell (input prices index moderated to 66.8 from 67.6) but did not really translate to lower selling price (output prices index fell to 58.4 from 58.5).

Supplies of raw materials to manufacturers slowed amid increasing demand from producers – supplier delivery time index fell to 53.0 in August (from 56.4 in July).

Given the delay from supplier’s end, manufacturers stocked up raw materials – raw materials/work-in-progress index rose, to 46.1 from 43.2.

“We saw stock of finished goods fall amid improvement in new orders – its index declined to 45.6 in August 2020 from 46.0 in July 2020”, Cowry Asset stated.

Notably, contraction in staffing levels in the manufacturing space slowed given the increase in production volume –employment index rose to 44.6 points (from 40.0 points).

Meanwhile, the non-manufacturing sector also recorded slower contraction as its composite PMI rose to 44.7 points in August (from 43.3 points in July), chiefly on improved business activity – its index rose to 47.4 (from 46.1).

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Also, incoming business index rose to 44.0 from 43.4. Hence, employment index point increased, to 44.3 (from 41.1).

However, average price of inputs index rose to 53.5 points in August from 50.9 index points in July.

PMI: Economic Recoveries in Nigeria, Others Could Disappoint in Q3