Uncertainties, Inflation, FX Rate Crack Private Sector Growth –PMI
Uncertainties, high inflation rate and unfavourable foreign exchange movements impacted private sector growth in April, according to the Stanbic IBTC purchasing manager index (PMI) report released by IHS Markit today.
Marked and accelerated expansions in output and new orders which helped drive a pick-up in growth in the Nigerian private sector in April 2022, the report reads.
However, the report stated that private sector performance was once again impacted by elevated rates of inflation, uncertainty and unfavourable exchange rate movements.
Nevertheless, strong demand encouraged firms to add to their inventories and raise their headcounts at an accelerated pace, according to the report. At 55.8 in April, up from 54.1 in March, the headline PMI signalled a sharp improvement in business conditions in Nigeria’s private sector.
The report hints that growth has now been seen in each of the last 22 months with the latest uptick quicker than the long-run series average. It added that central to the improvement was an accelerated uptick in new orders.
The overall rate of expansion was marked as the third-quickest in the current 22-month sequence of growth, Stanbic IBTC PMI noted.
PMI report hinted that stronger demand and greater client requirements had been behind the latest increase in new business, with growth signalled across each of the four broad sectors covered by the survey.
“Strong inflows of new work resulted in a further uplift in output. The rate of growth was robust and quickened from that in March.
“Sub-sector data revealed expansions across the board, though agriculture recorded the quickest expansion. Wholesale & retail, manufacturing and services followed, respectively.
“With workloads increasing, and demand expanding over the last 22 months, firms sought to boost headcounts in a bid to ramp up activity. READ: Input Costs Pressures Eclipsed Private Sector Performance -PMI
“Subsequently, backlogs fell at the quickest pace for four months. To cater for higher output volumes, firms increased their buying activity in April.
“Stocks of purchases also rose, and at a quicker pace than in March. Turning to prices, Russia’s invasion of Ukraine exacerbated costs for a wide range of raw materials as well as fuel. Firms also indicated higher transportation fees.
“The overall rate of input price inflation was substantial and the fourth-quickest in the survey’s eight-year history. Firms chose to pass on a large part of the burden to clients, with selling price inflation among the quickest in the series history”, it stated.
Stanbic IBTC PMI stated that firms were optimistic about growth in the year ahead, but sentiment dipped to a four-month low. Uncertainty surrounding the global environment and a lack of plans to expand operations led to the moderation in confidence.
Commenting on the report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “As in past months, the Stanbic IBTC PMI continues to indicate strong expansion in private sector activities.
“The April PMI index printed at 55.8 from 54.1 in March, recording an uptick in output and new orders during the period. However, business owners indicated reduced optimism about growth this year given the uncertainty surrounding global geopolitical tension”.
Oni said indeed, the International Monetary Fund recently reduced the global growth projection to 3.6% for 2022 from 4.4% in the initial forecast, even as they expect higher inflation levels in the global space.
However, IMF revised Nigeria’s growth upwards to 3.4% given the higher oil price environment and the robust recovery recorded in 2021, even though we believe that the declining level of oil production serves as a downside risk.
“Inflation has become a global phenomenal in recent times driven by elevated energy prices. Sure, with the possibility of supply-chain disruptions, unrecovered from the pandemic and intensified by the Russia/ Ukraine crisis, we see inflation further pressured and the pass-through imported inflation in our domestic market.” #Uncertainties, Inflation, FX Rate Crack Private Sector Growth –PMI
