August 5, 2024/CSL Research

The Nigerian private sector contracted due to elevated inflationary pressures that dampened demand, leading to declining business activity and new orders in July 2024. The Stanbic IBTC Bank Nigeria PMI recorded a headline index of 49.2 in July 2024 from 50.1 recorded in June 2024 indicating a contraction from the previous month and marking the first sub-50 reading in eight months. Several factors contributed to this downturn. Surging input costs, including raw materials and energy, and increased staff costs forced businesses to raise selling prices. However, weak consumer purchasing power led to a decline in demand for goods and services. This resulted in the first reductions in output and new orders since November last year. Additionally, business confidence deteriorated sharply, reaching a record low.

In July, further currency weakening and rising inflation created a challenging environment for businesses in Nigeria, leading to increased costs, reduced profit margins, cash flow issues, supply chain disruptions, and strategic adjustments. Purchase price inflation accelerated to a four-month high, driven by recent currency devaluation and higher raw material costs. Employee expenses continued to rise, similar to the increase seen in June, as companies provided additional support to workers facing higher living costs.

It is pertinent that the Federal Government of Nigeria coordinates monetary and fiscal policies to achieve sustainable economic growth. Such an approach should prioritise targeted interventions to address supply-side bottlenecks, enhance infrastructure development, and foster a conducive business environment. Additionally, the government should implement policies aimed at boosting consumer disposable income, thereby stimulating domestic demand. By synergising monetary and fiscal policies, Nigeria can create a more resilient and inclusive economy capable of weathering economic shocks and achieving long-term prosperity.