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Home Banking & Finance  Private sector growth hits nine-month high-PMI report  

 Private sector growth hits nine-month high-PMI report  

The Purchasing Managers’ Index (PMI) report for May shows growth in the Nigerian private sector gained momentum in May, with business conditions improving to the greatest extent in nine months. 

Output and new order growth strengthened, with companies reporting marked rises in customer numbers. As a result, firms added to their head counts, and at the strongest rate in almost three years. In response to greater output requirements, firms increased their buying activity, and raised inventory holdings for the eleventh month running. Plans to expand product offerings underpinned expectations for growth over the next 12 months, although sentiment moderated to a five-month low.

Meanwhile, overall input price inflation quickened to the sharpest in the series history. Rising staff and material costs were behind higher prices.

The  headline  figure  derived  from  the  survey  is  the Purchasing Managers’ Index™ (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

At 54.4 in May, up from 52.9 in April, the headline PMI registered a rate of growth that was the sharpest since last August, and extended the current sequence of expansion to 11 months.

The stronger improvement in the health of the private sector was centred on a robust rise in new orders, with the rate of growth the strongest since last August. Exports meanwhile rose at the fastest pace since February 2020.

With new business up sharply, firms increased output levels for the sixth month in succession. The latest uptick was the strongest in the aforementioned sequence and in line with the series average. Sub-sector PMI readings indicated manufacturers saw the fastest rise, followed by agriculture, services and wholesale & retail, respectively. Meanwhile, larger output requirements encouraged increases in buying activity and inventory holdings.

To cater for growing demand, firms sought to increase their headcounts. The rate of expansion was solid, and reached a 35-month high in May. Rising staffing levels allowed firms to complete orders in a timely manner with backlogs falling at the third-quickest rate in the survey to date.

Overall input price inflation quickened to the sharpest   in the series history. Higher raw material costs and unfavourable exchange rate movements were linked to the uptick. Increased input prices were often passed on to clients, with charge inflation the third-quickest since data collection began in January 2014. Business sentiment remained in positive territory as plans to expand operations fueled optimism. That said, sentiment was weak in the context of the historical average.

Economist at Stanbic IBTC Bank, Gbolahan Taiwo,  commented: “The Nigerian private sector business environment continues to show strong signs of improvement in May as the PMI rose to 54.4, the highest print in nine months. For one, the easing of stringent public health restrictions since the second quarter of last year continues to pave the way for some level of broad macro-economic recovery this year. That said, the economy still faces some idiosyncratic factors of heightened insecurity situation and seemingly low forex liquidity. We believe the Agricultural and ICT sectors will still drive growth this year. However, as the recently published quarter one GDP numbers showed, the manufacturing sector is back in positive territory, growing by 3.4 per cent year-on-year from a contraction of 1.5 per cent year-on-year  during the fourth quarter of 2020. This is very much in alignment with persistent recovery we have seen in the PMI numbers since last year. We think that the Nigerian economy will grow by 3.1 per cent year-on-year  this year, partly helped by lower base effects occasioned by the contraction during the second and third quarters of 2020. Inflation continues to remain high and as the recent PMI series suggests, both input and output prices have been on the rise. This potentially could impact the recovery in aggregate demand and purchasing power of the consumer, in light of sticky wages.”

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