Nigeria’s private sector activities see an improvement in the month of July 2022 according to the latest purchasing manager index (PMI) released by S&P Global on behalf of Stanbic IBTC today.
According to the report, a return to growth in output and stronger inflows of new orders helped underpin a further improvement in operating conditions in the Nigerian private sector during the period.
In turn, the report said businesses increased their purchasing activity at the strongest rate for five months while stocks increased sharply. Despite stronger inflows of new work, employment growth eased and was marginal amid elevated costs and subsequent pressures on profits, the PMI report for July says.
It noted also that purchase and output price inflation accelerated to four-month highs in July, with unfavourable exchange rate movements and higher fuel costs behind the latest round of inflation.
Nevertheless, PMI indicates that sentiment improved from June, and firms reported hopes of securing greater business investments.
Detail shows that the headline PMI registered at 53.2 in July, up from 50.9 in June, signalling an improvement in business conditions in Nigeria’s private sector. The latest figure rose from June’s 17-month low but was still muted compared to the historical average.
A renewed increase in output supported the latest improvement in business conditions in July. Output rose solidly, albeit, at a rate that was weak by historical standards, the report said.
In the period, Agriculture recorded the strongest uplift in output, followed closely by manufacturing. Services and wholesale & retail followed, where rates of growth quickened from those seen in June.
Stronger client demand was behind the uplift in output with new orders rising sharply across all four sectors in July, the PMI report says.
It added that to support higher output, companies increased their purchasing activity for the twenty-fifth month in a row. Consequently, stocks of purchases rose markedly as firms intensified efforts to build up their inventories.
Moreover, the rate of growth was the steepest in seven months. Vendor performance improved in July, but to the least extent for over two years amid reports of busier road conditions.
“Outstanding business fell at the softest rate since August 2020 in July. Sufficient capacity combined with rising costs led firms to raise their headcounts at the slowest pace for seven months.
“Turning to prices, overall input price inflation was robust amid a quicker uptick in purchase costs. Staff costs rose only marginally, however.
“Firms passed on a large part of the burden by lifting their selling prices at the quickest rate in four months. Finally, firms remained optimistic of output growth in the year ahead amid hopes of acquiring greater investment and expanding business operations”.
Speaking to the latest report, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The headline PMI signalled an improvement in the private sector business environment, registering at 53.2 in July, up from 50.9 in June”.
According to Oni, this is owing to the strong output levels driven by improved demand during the period. Stanbic Head of Equity Research said new orders increased sharply across key sectors: agriculture, manufacturing, services and wholesale and retail.
Notably, producers experienced higher purchase costs and hence increased their selling prices in order to support their margins, Oni said, adding that key factors for the inflationary pressure experienced during the period were unfavourable currency movement and increased petrol costs.
“The Central Bank of Nigeria’s MPC at the July meeting unanimously voted to raise the MPR by 100bps, to 14%, in order to combat inflation pressures.
“The CBN’s however noted that the external shocks supply-chain challenges worsened by geopolitical tensions, high commodity prices and high inflation which could dampen economic growth in the near term. The CBN still sees growth at 3.24% year on year in 2022, largely in line with our forecast.
“The CBN continues to favour a gradual depreciation of the naira. Notably, during the month, we saw the NAFEX move to settle at 424 levels, compared to the 416 levels in January. Whilst we have a year-end forecast of 440, we still see a further depreciation risk to our forecast”, Stanbic IBTC Head of Equity Research West Africa said.