August 28, 2019/Cordros Report

Recently released PMI data showed an extension of the positive trend into the third quarter of the year. The CBN’s Purchasing Managers Index for August rose by 0.4 points to 58.35 index points, which represented the twenty-ninth consecutive month of expansion. Digging into the sub-components, we observed that the expansion across both the manufacturing PMI (+0.3 points to 57.9) and non-manufacturing PMI (+0.1 point to 58.8) drove strong business confidence in the review period.

For the manufacturing sector, we believe that the improved out turn is indicative of strong business sentiments, with indicators further pointing towards a faster pace of growth of activities in the sector going forward. Dissecting the breakdown, we noted that the improvement stemmed largely from the significant buildup of inventory levels (+2.5 points to 58.7), as well as improvement in supply delivery times (+0.8 points to 58.3). However, weaker domestic demand dampened growth in new orders levels (-0.1 points to 57.1), which had a negative pass through effect on production levels (-0.2 points to 58.7) and employment levels (-0.2 points to 57.1).

For the next few months, we expect the composite PMI to maintain its upward trajectory amidst FX stability and moderating input prices, the impact of which should drive positive business sentiments. While we continue to reiterate that PMI is not always a precise indicator of economic performance, we believe that the expansionary readings provide supports for improved GDP growth in 2019. Overall, we expect 2019FY GDP growth to print 2.21% (2018FY: 1.91% y/y).

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