Nigeria’s private sector growth has stalled, with business activity grinding to a near halt in June 2024. This worrying trend is revealed in the latest Stanbic IBTC Bank Purchasing Managers’ Index (PMI) report, released on Monday.
The PMI, a key indicator of economic health in the private sector, fell to 50.1 in June, down from 52.1 in May. A reading above 50 indicates expansion, while below 50 signifies contraction. The marginal June score points towards stagnation, raising concerns about the immediate future of Nigerian businesses.
“The June data signaled a broad stagnation of the Nigerian private sector as subdued demand and intense price pressures led to slowdowns in growth of output and new orders. In turn, employment rose only fractionally,” the report stated.
Inflation Dampens Demand
The report highlights a crucial factor behind the slowdown: rising inflation. Businesses reported experiencing significant increases in purchase prices, staff costs, and selling charges compared to May. This inflationary environment is squeezing consumer spending and dampening demand for goods and services.
“Although new orders continued to rise in June, the rate of expansion was only marginal and the weakest in the current seven-month period of growth,” the report noted. “There were some reports of underlying demand improving, but sharp price rises meant that customers faced challenges being able to commit to new projects.”
Impact Across Sectors
The PMI survey, encompassing over 400 companies from various sectors like agriculture, manufacturing, services, construction, and retail, paints a comprehensive picture of the economic climate. The report utilizes a composite index derived from five individual indexes – new orders (weighted 30%), output (25%), employment (20%), supplier delivery times (15%), and stock of purchased items (10%). Notably, the supplier delivery times index is inverted to ensure a consistent upward or downward trend alongside the other components.
Expert Analysis on PMI
Muyiwa Oni, Head of Equity Research, West Africa at Stanbic IBTC Bank, offered insights into the PMI data. “The Stanbic IBTC headline PMI dropped to a seven-month low of 50.1 points in June from 52.1 in May due to moderation in domestic demand amid the intensification of price pressures, leading to slowdowns in growth of output and new orders,” he explained.
Oni further emphasized the near-stagnation of new orders, indicating a significant slowdown in new business activity. “Financial challenges at customers reportedly limited the ability of firms to fully benefit from any improvement in underlying demand,” he said. “In line with the picture for new orders, output rose at a slower pace during June, settling at its weakest level in four months.”
If You Ask Me
The Nigerian economy faces a complex challenge. While inflation continues to erode purchasing power, businesses struggle to maintain profitability amidst rising costs. The government must prioritize measures to curb inflation and stimulate domestic demand to ensure a more sustainable economic recovery. Businesses, on the other hand, need to find ways to adapt to the changing environment, potentially by focusing on cost-efficiency and exploring alternative markets less affected by inflation.
The coming months will be crucial in determining the trajectory of Nigeria’s economic growth. Addressing inflationary pressures and fostering a business-friendly environment will be vital in navigating these uncertain waters.
