May 9, 2024/CSL Research
In April 2024, the Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) saw a slight expansion, increasing slightly by 10bps to 51.10 after trending at 51.00 in the prior two months.
However, this is the fifth consecutive month of improvement from the fall to 48.00 in November 2023. A PMI reading above 50 denotes expansion in business conditions in the private sector, while a reading below 50 signifies contraction. In this case, the April PMI remaining marginally above 50 suggests a slight but positive uptick in business conditions for enterprises in the Nigerian private sector.
The slight improvement observed in the April PMI reading can be attributed to the easing of foreign exchange rates during the period, resulting in slower price hikes and reduced output charges across all sectors surveyed. Despite this moderation in price increases, inflationary pressures persisted, constraining growth in output, while new orders remained stagnant compared to the previous month.
Notably, the manufacturing sector experienced an uptick in production levels, driven by companies capitalizing on favorable raw material prices by purchasing in bulk. As a result, inventory levels expanded across the manufacturing sector. However, firms reported a deceleration in employee expenses during the period.
The persistent devaluation of the national currency, coupled with escalating import and electricity expenses, alongside the ongoing fuel scarcity, are poised to exert downward pressure on the Purchasing Managers’ Index (PMI) for May 2024. Heightened economic uncertainty surrounding Nigeria may dampen investment decisions and erode corporate confidence, prompting companies to adopt a more cautious approach towards expansion initiatives.
Doubts persist regarding the effectiveness and sustainability of the Central Bank of Nigeria’s efforts to bolster stability and liquidity in the foreign exchange market.
Consequently, the nation’s PMI is likely to face challenges in surpassing the critical 50-point threshold amidst prevailing economic headwinds.
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