Rising fuel costs intensified inflationary pressures and contributed to a slowdown in private sector expansion at the end of the first quarter, according to Stanbic IBTC Bank’s latest Purchasing Managers’ Index (PMI) report.
The headline PMI eased to 51.9 in March from 53.2 in February, remaining above the 50.0 threshold that signals expansion but pointing to a slower pace of growth. The reading extends a 15-month streak of improving business conditions, though the latest data shows mounting cost pressures are beginning to weigh on output.
The report indicates that while demand conditions remained relatively strong, output growth was only modest. Firms continued to record an increase in new orders, prompting expansions in hiring and purchasing activity.
However, elevated fuel costs emerged as a key constraint.
“Output growth was only modest…with some firms noting that rising fuel costs had limited growth,” the report stated, highlighting a divergence between resilient demand and constrained production capacity.
Sectoral performance was mixed, with activity expanding in agriculture and wholesale and retail, but contracting in manufacturing and services.
Cost pressures accelerated sharply during the month, driven largely by higher energy prices.
Purchase costs rose at the fastest pace in 15 months, while firms passed on these increases to consumers, resulting in the steepest rise in selling prices since December 2024. Inflation was broad-based, affecting all four monitored sectors.
Despite this, employment continued to grow for the tenth consecutive month, albeit at a slower pace, while staff cost inflation eased to a four-month low.
According to the report, businesses responded to rising new orders and anticipated workload increases by stepping up input purchases. While input buying rose markedly, inventory accumulation remained modest.Companies also expressed confidence in the year-ahead outlook, supported by plans to expand operations and intensify marketing efforts.
Commenting on the report, Muyiwa Oni, head of equity research, West Africa at Stanbic IBTC, said underlying demand remains firm despite the slowdown.
“Higher fuel costs and power supply issues contributed to slower growth, but customer demand and new product launches continued to support new orders,” he noted.
Oni added that rising input prices, now at their sharpest pace since January 2025, remain a key concern across all sectors.
He pointed to ongoing government investment drives in oil and gas, solid minerals, electricity, agriculture, and manufacturing as supportive of production sentiment, alongside infrastructure development expected to boost construction, real estate, and cement sectors. However, he warned that external risks are building.
“The ongoing tensions in the Middle East pose a downside risk…as sustained increases in fuel prices could lead to higher-for-longer interest rates, potentially dampening demand,” Oni said.
