Onome Amuge
Nigeria’s private sector growth softened in May, hitting a four-month low despite continued expansion in business activity. The latest Purchasing Managers’ Index (PMI) report, released by S&P Global on behalf of Stanbic IBTC, indicated a deceleration midway through the second quarter, primarily attributed to elevated inflationary pressures.
The headline PMI registered 52.7 in May, remaining above the 50.0 no-change threshold for the sixth consecutive month and signalling a solid improvement in business conditions.
However, this reading marks a decline from 54.2 in April, pointing to the least marked enhancement in private sector health since January. The slowdown was observed across both output and new orders, each expanding at their slowest rates in four months.
Businesses that reported growth linked it to improvements in customer demand, increased client numbers, and new product launches. Output expanded across all four broad sectors covered by the report, with the sharpest growth noted in wholesale & retail and manufacturing.
Inflationary pressures remained high in May, though they eased marginally from April. Purchase costs rose rapidly, driven by higher raw material prices, Naira depreciation, and increased transportation expenses. Staff costs also climbed, albeit at their slowest pace since March 2023, as a reduction in employment helped to contain wage bill increases.
Workforce numbers dipped for the first time in six months, with some firms attributing this to difficulties in paying staff, leading to resignations. Staff shortages contributed to a second consecutive rise in backlogs of work, but respondents primarily cited delays in customer payments as the main impediment to project completion. The latest increase in outstanding business was the sharpest since February 2023.
Despite the reduction in employment, companies maintained a rapid pace of purchasing activity, driven by the need to meet both current and future client demands. Consequently, stocks of purchases also rose, recording their fastest increase in three months. Competition among suppliers and prompt payments resulted in a further shortening of suppliers’ delivery times, though this improvement was the least pronounced so far in 2025.
Business confidence waned for the fourth consecutive month, falling to one of its lowest recorded levels. Nonetheless, companies retained optimism for output expansion over the coming year, linking positive sentiment to ongoing business expansion plans, marketing efforts, and restocking initiatives.
Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank, commented, “Business conditions remain in the expansionary territory for the sixth consecutive month in May amid continued improvement in customer demand, which is also ensuring businesses launch new products.” He added, “However, the pace of improvement in business conditions slowed relative to April, pointing to the least marked improvement since January. While new orders have now increased in each month since November 2024, some firms implied that market conditions are softening.”
Oni elaborated that the pace of improvement in new orders during May eased to its weakest level in four months. Despite this, rising sales and higher customer numbers sustained pronounced output growth across the wholesale & retail and manufacturing sectors.
“Given the rising sales and higher customer numbers, companies increased their quantity of purchases for the sixth consecutive month while the rate of inventories accumulation quickened to a three-month high,” Oni noted.
He pointed out that input costs remain high in May, albeit slightly softer than April inflation, with the pace of price increase remaining well above the series average. As a result, output prices remained sharp as companies passed on the rising purchase costs to customers.
Oni further explained that instances where companies charged lower prices were attributed to the need to attract customers, which partially contributed to the easing of output price inflation to a two-year low in May. He concluded that Nigeria’s business conditions are on course to end Q2:25 on a positive momentum, albeit relatively weaker than witnessed in Q1:25, primarily due to more pronounced currency weakness, higher raw material costs, and increased transportation prices compared to Q1:25.
“However, as inflation is expected to remain softer compared to the 2024 average, interest rates are likely to be lower this year, thereby helping to support medium-term economic growth path.
“Therefore, we still maintain our expectation that the Nigerian economy is likely to grow by 3.5% y/y in real terms in 2025 relative to 3.4% y/y growth in 2024,” ,” Oni projected.
