August 3, 2023/CSL Research

In a recent report, the nation’s composite Purchasing Manager’s Index (PMI) expanded moderately over the threshold of 50.o to 51.70 for July 2023, 150 basis points (bps) below the performance of 53.2 for June 2023. This reflects a slowdown in business activities. The decline in the PMI numbers when compared to June was a result of low growth performance of the output and new orders segments, a reversal of the expectation of high performance after the cash crunch witnessed in Q1 2023.

Expansionary measures in the period were weakened by the effects of high inflation as the nation’s headline Inflation reached 22.79% in June 2023. Amongst others, the hike in the price of petrol since its deregulation and currency weakness due to the FX unification policy have prompted firms to increase output prices. To counter the effect of the high cost of production, firms would typically transfer increased costs to the consumers and we expect price increases  across the manufacturing and non-manufacturing sectors. However, considering the weakened consumer purchasing power, we expect volumes to be impacted except where such products are a necessity.

The manufacturing sector grew modestly by 2.4% in 2022, reflecting the negative impact of CBN’s hawkish rendition, especially in the second half of the year. In fact, the sector contracted by 1.91% in Q3 2022, the first contraction since covid hit in 2020. Though at a slower pace, the CBN has maintained its hawkish stance and the fortunes of the sector appeared to have worsened with the latest reforms of the new administration such as the fuel subsidy removal and the unification of the exchange rates at the various windows. In Q1 2023, the growth rate reduced to 1.61% compared with 2.83% in Q4 2022 and believe conditions will worsen in H2.

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