Private sector growth slows on subdued business confidence – PMI

Private sector growth slows on subdued business confidence – PMI

The Nigerian private sector stagnated in June as subdued demand and strong pricing pressures led to a slowdown in output growth and new orders, according to the latest Stanbic IBTC Purchasing Managers’ Index data released by S&P Global.

Employment, on the other hand, rose only slightly. There were signs of rising inflationary pressures, with purchase prices, employee costs and selling costs rising faster than in May.

As can be seen from the details of the monthly report, the main PMI index only slightly exceeded the 50.0 mark in June, which means that business conditions remained broadly unchanged at the end of the second quarter.

The index came in at 50.1, down from 52.1 in May, a seven-month low. Although new orders continued to rise in June, the pace of growth was only marginal and the weakest in the current seven-month period of growth.

There were reports of improving demand, but soaring prices made it difficult for customers to commit to new projects.

The results showed that companies again raised their selling prices sharply in June, and the pace of inflation accelerated slightly compared with May.

The stronger increase in production prices was in tandem with a faster increase in input costs. Purchase price inflation was recorded amid currency weakness and higher raw material costs, particularly those related to animal feed.

Meanwhile, efforts to help workers cope with rising living and transportation costs have led to continued solid wage growth. In line with the new orders picture, production rose at a slower pace in June.

The growth rate was slow and the weakest in four months. A faster growth in economic activity was recorded in agriculture and manufacturing than in services and wholesale and retail trade.

Muted demand conditions allowed companies to reduce work backlogs for the first time in four months. Some companies indicated that they had settled all outstanding business.

However, there were other reports that difficulties in securing materials (often linked to pricing) were causing delays in project completion, meaning the overall reduction in the backlog was only marginal.

Amid a slowdown in new order growth and a shrinking backlog, the vast majority of companies kept their employment levels unchanged in June. Employment rose slightly for the second month in a row.

Companies increased their purchasing activity at a solid pace, reflecting a recent increase in new orders and efforts to get ahead of expected future price increases. Inventories also increased.

Business confidence remained among the lowest on record in June. Where companies were optimistic about manufacturing prospects, it was related to corporate expansion plans, securing new financing and export efforts.

Commenting on the report, Muyiwa Oni, Head of West Africa Equity Research at Stanbic IBTC Bank, said: “The Stanbic IBTC headline PMI fell to a seven-month low of 50.1 points in June, down from 52.1 in May, as a result of the slowdown in domestic demand against the background of intensifying price pressure, which led to a slowdown in production growth and new orders.

Oni said the number of new orders was near stagnation and growth in new orders was modest and the slowest in the seven-month expansion period.

Moreover, added Stanbic, director of equity research at IBTC in West Africa, client financial concerns are limiting firms’ ability to fully benefit from any improvement in demand.

“In line with the new orders picture, production grew at a slower pace in June, reaching the weakest level in four months. Meanwhile, the rate of input price inflation remained elevated in June, reaching the highest level for the second month in a row and the highest since March.

“Nearly 60% of respondents noted an increase in input costs during the month. In line with the trend in input costs, companies again raised their selling prices sharply in June. The pace of inflation accelerated slightly compared to May.

“Nigeria’s private sector activity, as measured by PMI, ended the second quarter of 2024 in a weak position as the domestic economy continues to suffer from the effects of high price pressures, high interest rates and persistent currency weakness.

“The PMI reading this quarter is consistent with a likely slowdown in non-oil sector growth to 2.6% y/y in Q2 2024 from 2.8% y/y in Q1 2024.

“Nevertheless, headline inflation is likely to peak in June, with moderation expected in the second half of 2024 as the year-on-year effects of the removal of subsidies due to the PMS and the significant currency depreciation fade away.

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