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Nigeria’s PMI hits 18-month high in July, amid strong demand conditions

August 2, 2021
Stephen M.Cby Stephen M.C
in World, Africa
0
infrastructure

President Muhammadu Buhari, President of Nigeria

Nigeria’s private sector is continuing on a positive trajectory as the country’s Purchasing Manager’s Index (PMI) reaching an 18-month high in July 2021 on its run of expansion.

This growth performance is as a result of quicker upticks in output, new orders, purchases and employment. Nonetheless, firms were able to keep backlogs of output at bay, though sentiment did moderate to the weakest since September 2020.

Per the Purchasing Managers’ Index, reading above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 indicate a deterioration. According to IHS Markit, the headline PMI rose in July to 55.4, up from 53.6 in June 2021.

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The growth in output was as a result of stronger demand conditions, with new orders rising at the fastest rate in more than a year. Following this, firms raised their output levels, and at the joint-quickest rate since August 2020.

Also, the increased output requirements triggered a rise in the purchase of inputs during the month, which firms did so at the quickest rate in the past 18 months.

For July 2021, greater output requirements led firms to raise their buying activity which they did so at the sharpest rate in the 18 months. The sustained period of output and new order growth encouraged firms to add to their inventory holdings. Firms’ expectation of greater demand was also linked to stockpiling efforts.

On the back of higher workloads, firms raised their headcounts. IHS Markit also indicated that job creation has now been seen in each month since February 2021. This therefore allowed firms to clear their backlogs for the fourteenth month in a row.

Firms’ sales performance and inflation

Furthermore, the rate of backlog depletion eased to the slowest in four months, but was still among the quickest throughout the past months. Meanwhile, performance of sales inched up, thus, adding on to the better improvement experienced throughout the period.

That said, the rate at which lead times shortened was the softest in 15 months. According to firms, busier road conditions and material scarcity affected supplier delivery times. Shortage of materials also shot up costs, with firms indicating that rising transportation and staff expenses contributed to higher costs.

Overall, input price inflation eased to a seven-month low, but was still high considering the context of the historical average. Meanwhile, output price inflation increased, with the improving demand environment allowing firms to raise their charges.

Moreover, sentiments expressed among firms remained positive amid plans to raise exports and expand business operations. That said, the degree of positivity moderated to the fourth weakest in the past months.

Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “The private sector business environment continued to show steady improvement with the PMI increasing to 55.4, the highest point in the past 18-months. Output, new orders and exports increased. The easing of restrictions since the height of the lockdown in Q1 2020 continue to support economic recovery. Q1 GDP growth rate of 0.51 per cent year-on-year, was slightly higher than 0.11 per cent in Q4 2020, driven by Agriculture, ICT and Manufacturing sectors.

“The Manufacturing sector swung positive, growing by 3.4 per cent year-on-year after contracting between Q2 2020 to Q4 2020. These sectors have continued to spur growth, demonstrating steady resilience in the face of economic downtime.

“However, likely restrictions due to rising covid-19 cases causes concerns of a third wave which remains a downside risk to economic recovery and our growth projections of 3.1 per cent year-on-year this year. Inflation continues to remain high and as the recent PMI series suggests, both input and output prices have been on the rise. This potentially could impact the recovery in aggregate demand and purchasing power of the consumer, considering sticky wages. Nevertheless, we have started to see a declining trend…”

IHS Markit

READ MORE: Change Strategy to meet renewable energy generation mix target of 10%- Dr Sulemana

Tags: demandEmploymentFirmsNigeriaPurchasing Manager's Index
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