Stanbic IBTC PMI Shows Private Sector Downturn Eased In July

Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) has shown that the downturn in Nigeria’s private sector showed signs of easing in July, as both output and new business fell at slower rates, having dropped to the greatest extent in the June.

The survey revealed that growth of employment and purchasing activity picked up in the month, saying, “Added together, these contributed to a slowdown in the overall rate of contraction, as business conditions worsened only modestly. On the price front, companies reported weaker cost pressures. Charges subsequently rose at a softer, albeit still sharp, pace.”

The headline figure derived from the survey is the PMI Readings above 50.0, which signals an improvement in business conditions on the previous month. Readings below 50.0 show deterioration.

Adjusted for seasonal influences, the Stanbic IBTC Bank Nigeria PMI posted 48.8 in July and pointed to a fifth deterioration in business conditions in the past six months.  However, the latest reading was up from June’s survey-record low of 47.3, thereby signalling that the overall rate of contraction had eased.

Commenting on July’s survey findings, Economist at Stanbic IBTC Bank, Ayomide Mejabi, said, “The Stanbic IBTC Bank Nigeria PMI for July signalled a slower downturn in Nigeria’s business operating conditions by reaching 48.8 from a survey low of 47.3 in June. While the overall survey result suggests some improvement, it remains below 50 and implies that macroeconomic conditions are weak.

“Perhaps an explanation for the improved sentiment in consumer and business activity can be traced to the recent reforms implemented by authorities, especially in the foreign exchange market. Indeed, after a likely contraction in growth during the first half of the year, it is expected that recent reforms in the foreign exchange market aimed at attracting net capital inflows will finally be able to boost domestic investment and consequently growth.

Lower output was a key factor behind the private sector downturn. Though slower than in June, the rate of decline was marked and broadly in line with the average over the current six-month sequence of falls. According to panellists, activity fell for a number of reasons, including subdued demand, high prices and an unfavourable exchange rate.

Data showed that the reduction in output was largely reflective of another contraction in new business. Over the past six months, new orders have either fallen or remained unchanged. The latest decline was only modest, however.

New export orders fell to a greater extent than total new work in July, suggesting that the downturn in foreign demand was more pronounced than that seen in domestic markets. Firms reported that client interest from abroad had been muted. In fact, new business from abroad dropped at a survey-record pace.

Employment meanwhile continued to rise in July. The rate of job creation accelerated to a six-month high, but remained weaker than the average over 31 months of data collection so far. A larger workforce helped to clear some backlogs of work, particularly amid falling new orders. Purchasing activity increased for the fourth straight month and at the fastest pace since the turn of the year. There was also a renewed expansion of input stocks, albeit only modest.

Finally, total input prices rose at a slower rate in July. Currency weakness remained a factor behind higher costs (notably fuel), but anecdotal evidence suggested that its impact had waned. The increase in charges eased as a result, but was nevertheless marked overall.