A slowdown in business activities has gripped Nigeria’s private sector, with the Stanbic Purchasing Managers’ Index (PMI) for July dipping below the crucial 50-point mark.
The index, which measures the month-on-month change in the combined activity of manufacturing, construction, wholesale, and retail, recorded 49.2 in July, signaling a contraction for the first time since November 2023.
Decline in Output and New Orders
The report attributed the downturn primarily to reductions in both output and new orders, marking the first decline since November of the previous year. The impact of soaring prices on consumer demand was evident, with clients exhibiting reluctance to commit to new projects.
“The headline PMI posted 49.2 in July, down from 50.1 in June and below the 50.0 no-change mark for the first time in eight months. The index signalled a slight deterioration in business conditions as the second half of the year got underway,” the report stated.
Inflationary Pressures Persist
Despite a slight easing from the previous month, inflation remained stubbornly high. Companies continued to pass on increased input costs to consumers, leading to persistent price hikes. The report highlighted that purchase price inflation reached a four-month high due to currency weakness and elevated raw material costs.
Employment Costs and Business Confidence
To mitigate the impact of rising living costs, particularly transportation expenses, companies increased employee compensation in line with June levels. However, the renewed decline in output coincided with a drop in business confidence, reaching its lowest point since the survey’s inception.
Manufacturing Sector PMI
Amidst the gloomy outlook, there was a silver lining. The manufacturing sector emerged as the sole bright spot, recording growth during the period. Additionally, companies expressed optimism about future output, with expansion plans driving expectations of increased production over the coming year.
Potential Relief for Consumers
Muyiwa Oni, Head of Equities Research at Stanbic IBTC West Africa, offered a glimmer of hope for consumers. He predicted a potential respite in the second half of the year due to the upcoming harvest season and the gradual easing of the impact of fuel subsidy removal and exchange rate depreciation.
“On a year-on-year basis, headline inflation may have peaked in June, with moderation expected in H2:24 as the year-on-year effects of PMS subsidy removal (which induced higher fuel prices) and significant currency depreciation (which accompanied the FX unification) fade. This, in addition to the commencement of the primary harvest season in September, is likely to provide some respite for consumers, thereby likely supporting a slight improvement in domestic economic activities in H2:24,” Oni stated.
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If You Ask Me
While the potential for some respite in the second half of the year exists, the Nigerian economy continues to face significant challenges. The ongoing inflationary pressures, coupled with the decline in business activity, underscore the need for prudent economic policies and targeted interventions to support businesses and consumers.
The full impact of these developments on the broader economy remains to be seen. However, the July PMI data serves as a stark reminder of the headwinds facing Nigeria’s private sector.
The coming months will be crucial in determining whether the Nigerian economy can weather the current storm and embark on a path of recovery.
