According to the Stanbic IBTC Purchasing Manager Index (PMI) reported by Standard and Poor Global, the Nigerian private sector returned to growth in December, with continued rises in both output and new orders recorded amid modest signs of recovery in demand.This was amid sustained significant inflationary pressure, with both buying and selling prices growing at faster rates than in November, according to the PMI data.
Meanwhile, corporate confidence fell to the joint-lowest level in the decade-long survey’s history. At the end of 2023, the headline PMI rose over the 50.0 no-change barrier for the first time in three months, to 52.7 in December from 48.0 in November. The rating indicated a significant improvement in the health of the private sector and one that was the most marked since June.
Following two months of contraction, demand circumstances showed signs of improvement, resulting in a significant rise in new orders. Similarly, commercial activity recovered and increased steadily during the month. However, wholesale and retail business continued to decrease, according to sector statistics. The December gains were accomplished despite the persistence of the strong pricing pressures witnessed in prior months.
While total input price inflation has moderated marginally, it remains among the highest on record. According to the research, the reduction in overall input price inflation reflected a weaker but still significant increase in personnel expenses. Meanwhile, the pace of purchase price inflation accelerated for the third consecutive month, reaching its highest level in two years.,
Panellists again linked inflation to exchange rate weakness and higher fuel costs, while there were also reports of higher prices for animal feed. In turn, selling price inflation also quickened and was the fastest since the survey record was posted in August.
The improvements in new orders and business activity in December encouraged companies to take on extra staff at the end of the year, thereby extending the current sequence of job creation to eight months.
Purchasing activity and inventory holdings were also expanded. Backlogs of work increased for the third time in the past four months, however, amid issues with the cost and availability of materials and customer payment delays.
Competitive pressures and requests for faster deliveries led to a tenth consecutive monthly improvement in vendor performance. Despite the return to growth of activity in December, confidence in the year-ahead outlook continued to wane, easing for the second month running to the joint-lowest since the survey began in January 2014.
Speaking to this, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The headline PMI returned to expansion territory for the first time in three months in December 2023, posting 52.7 from 48.0 in November”.
According to Oni, the reading implies a strong improvement in the health of the private sector and one that was the most marked since June. Demand conditions showed signs of recovery, leading to a marked increase in new orders following two months of contraction.
The Nigerian economy grew by 2.54% year-on-year in Q3 2023 relative to 2.51% year-on-year growth in Q2 2023. The growth improvement relative to the prior quarter was primarily driven by a modest decline in the Oil GDP as the non-oil sector’s growth moderated due to the impact of FX and PMS subsidy reforms witnessed in the review period.
Growth is likely to settle at 2.96% year on year in Q4:2023 supported by an expected return of the oil sector to growth, taking the full-year growth print at 2.60% year on year, Oni projected.
Nevertheless, head of equity research for West Africa at Stanbic IBTC Bank said feedback from respondents continues to show intense inflationary pressure, with purchase costs and selling prices each rising at sharper rates than in November.
Consumer price pressures remain unrelenting in Nigeria, rising by 87bps from the previous month to 28.20% year on year in November – its highest point since August 2005 when it printed at 28.21%.
Parsing through the breakdown, food inflation rose by 132bps to 32.84%, while the non-food inflation settled at 22.55%, with the most significant pressures coming from the utilities (23.37% y/y), health (23.85% y/y), and transport (27.02% y/y) sub-baskets.
“We expect inflationary pressures to remain elevated in the near term”, Oni said.
