August 2024/CSL Research

The Central Bank of Nigeria (CBN) recently released the Purchasing Managers’ Index (PMI) survey for July 2024, covering three key sectors: Industry, Services, and Agriculture. The July 2024 composite PMI score was 49.7 points, indicating a contraction in economic activities. Typically, an index above 50.0 points signals an expansion in business activities, while a reading below 50.0 points indicates a contraction. Although the July PMI remains in the contraction zone, the increase from 46.0 in May and 48.8 in June 2024 reflects a gradual positive trend in economic activities over the past three months.

Across the PMI indicators for the month, output level (50.3 points), suppliers’ delivery time (50.8 points), and stock/inventory of raw materials (50.7 points) expanded. New orders came in at 48.8 points, indicating subsisting demand challenges from businesses and consumers in reaction to price upticks while employment level at 48.7 points (an improvement from the prior month) shows relative stability in the labour market. The improvement in output level was the first growth in five months which we opine is in response to the positive trend seen in delivery time, goods stockpile and employment levels in recent months.

The Services sector outperformed in the month under review, expanding to 50.3 points and showing growth in eight out of fourteen subsectors. Conversely, the Industry (48.3 points) and Agriculture (49.7 points) sectors remained in contraction, reflecting the ongoing impact of high energy and production costs on Manufacturing, as well as the high cost of transportation and equipment. Additionally, the persistent challenges of insecurity and underdevelopment continue to affect the Livestock and Fishing subsectors.

The increase in output levels across sectors suggests a potential inflection point for economic recovery, indicating that production may stabilize further in the near term, particularly as inflationary pressures ease. This could boost business confidence, encourage investment, and improve employment, thereby enhancing overall economic activity. However, we approach this outlook with caution due to the decline in new orders during the review month, which raises concerns about maintaining demand in the near term—a key factor for achieving a robust economic recovery.

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