November 4, 2021/CSL Research

Continuing its spate of expansion for the sixteen month ending October 2021, the Purchasing Managers Index (PMI) pegged at a three month high of 54.1 last month. The performance follows the 52.2 and 52.3 recorded in August and September respectively, and points to sustained recovery across the sub-components. The recovery is driven by continued uptrend in consumer spending and substantial drop in demand backlogs. Gradual improvement in market conditions and rising client requirements were behind the growth recorded in new orders. We trace this to cyclical improvement underlined by the rising headcounts in companies which gives consumers some purchasing power, and consequently creates new orders.

The composite PMI is a reading from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction, and a reading at 50 indicates no change. The economy has continued to improve since it exited recession in Q3 2020. The improvement recorded so far is best reflected in the Gross Domestic Product (GDP), up 5.0% y/y in Q2 2021. The pandemic induced disruption to the global supply chain in 2020 restricted commercial activities. A development, whose impact on the global economy still lingers. The Central Bank of Nigeria has continually directed efforts at driving growth in the economy following the recession. Although not at the pre-pandemic levels yet, the efforts from both the fiscal and monetary authorities in the economy appears to be yielding gains.

The composite PMI is an indicator of economic health for manufacturing and service sectors, and the October figure signals that the economy is gradually coming out of the woods. However, with the high inflation rate, the survey showed an increase in both output and input prices. We reiterate our optimism that market conditions will continue to feed-off improving fiscal conditions. In addition, we also restate the need for the government to bridge infrastructural deficit to boost productivity and usher in a new era of sustainable growth and development.