Inflation, FX, uncertainty still a concern to private sector growth

BY CHARLES ABUEDE

The performance of the private sector in Nigeria continues be attacked by the triple impacts of rising inflation rate, overall uncertainty and unfavourable exchange rate movements, a new Purchasing Managers’ Index (PMI) report by Stanbic IBTC and published by IHS Markit for the month of April has disclosed.

The report highlights that the private sector has witnessed a marked and accelerated expansion in output and new orders which helped drive a pick-up in growth in the Nigerian private sector in April 2022 as the headline PMI signalled a sharp advancement to 55.8 percent in April from 54.1 percent in the prior month and tells more of the improvement in the business conditions while strong demand encouraged firms to add to their inventories and raise their headcounts at an accelerated pace.

The report hints that growth has now been seen in each of the last 22 months with the latest uptick quicker than the long-run series average while adding that central to the improvement was an accelerated uptick in new orders. Also, the overall rate of expansion was marked as the third-quickest in the current 22-month sequence of growth, Stanbic IBTC PMI noted.

Furthermore, the PMI report hinted that very strong demand and greater client requirements had been behind the latest increase in new business, with growth signalled across each of the four broad sectors covered by the survey.

Strong inflows of new work resulted in a further uplift in output. The rate of growth was robust and quickened from that in March.

Citing the report by Stanbic IBTC, “Sub-sector data revealed expansions across the board, though agriculture recorded the quickest expansion. Wholesale & retail, manufacturing and services followed, respectively.

“With workloads increasing, and demand expanding over the last 22 months, firms sought to boost headcounts in a bid to ramp up activity. Subsequently, backlogs fell at the quickest pace for four months. To cater for higher output volumes, firms increased their buying activity in April.

“Stocks of purchases also rose, and at a quicker pace than in March. Turning to prices, Russia’s invasion of Ukraine exacerbated costs for a wide range of raw materials as well as fuel. Firms also indicated higher transportation fees. The overall rate of input price inflation was substantial and the fourth-quickest in the survey’s eight-year history. Firms chose to pass on a large part of the burden to clients, with selling price inflation among the quickest in the series history,” it stated.

Muyiwa Oni, head of Equity Research West Africa, at Stanbic IBTC Bank, in his comments on the report, said, “As in past months, the Stanbic IBTC PMI continues to indicate strong expansion in private sector activities. The April PMI index printed at 55.8 from 54.1 in March, recording an uptick in output and new orders during the period. However, business owners indicated reduced optimism about growth this year given the uncertainty surrounding global geopolitical tension.”

In his remarks, he cited the recent downgrade of the global growth projection by the International Monetary Fund (IMF) to 3.6 per cent for 2022 from the earlier projected 4.4 per cent even as they expect higher inflation levels in the global space. On the contrary, the Fund revised Nigeria’s growth upwards to 3.4 percent given the higher oil price environment and the robust recovery recorded in 2021, even though we believe that the declining level of oil production serves as a downside risk.

In the words of Oni, “Inflation has become a global phenomenon in recent times driven by elevated energy prices. Sure, with the possibility of supply-chain disruptions, unrecovered from the pandemic and intensified by the Russia/ Ukraine crisis, we see inflation further pressured and the pass-through imported inflation in our domestic market.”

On the outlook for the remaining months of the year and beyond, the Stanbic IBTC PMI report highlights the optimism of major firms about growth in the year ahead, but sentiment dipped to a four-month low. Uncertainty surrounding the global environment and a lack of plans to expand operations led to the moderation in confidence.