Price pressure takes toll on Nigerian private sector as PMI slips to 7-month low

Business a.m.

The Stanbic IBTC Purchasing Managers Index (PMI) plunged to a seven-month low in June, indicating a slowdown in the Nigerian economy driven by weaker demand and price pressures. The monthly survey, which is used as a leading indicator of the state of the economy, revealed that the headline figure dropped to 50.1 points in June from 52.1 points in May, marking the lowest level in the past seven months.

The Stanbic IBTC Bank PMI is a monthly survey of purchasing managers across a panel of around 400 private sector companies, compiled by S&P Global to provide insight into the state of the Nigerian economy.

Despite ongoing growth in new orders, the rate of expansion slowed to its weakest level in the past seven months, according to the report. This moderate growth was accompanied by a surge in selling prices as companies sought to offset rapidly rising input costs.

These observations suggest that while private sector businesses continue to receive new orders, the overall demand in the Nigerian economy may be subdued due to price pressures, which could impact the country’s economic growth.

“Purchase price inflation was recorded amid currency weakness and higher raw material costs, particularly those related to animal feed. Meanwhile, efforts to help workers with increased living and transportation costs led to a further solid rise in wages,” the report indicated.

Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank, attributed the recent decline of the PMI to a moderation in domestic demand and intensifying price pressures. These factors led to a slowdown in output and new orders, with the latter recording a near-stagnant growth rate in June.

Oni further elaborated that the challenges faced by customers, such as financial difficulties, limited the ability of firms to reap the full benefits of any rise in underlying demand, contributing to the slowdown in output growth. This trend echoed the pattern seen in new orders, with output expanding at its slowest pace in four months in June.

The PMI report also highlighted persistent inflationary pressures in the Nigerian economy, with the rate of input price inflation hitting its highest level since March, marking a consecutive two-month increase.

A significant proportion of respondents, close to 60 percent, reported an uptick in input costs during June, as noted by Oni. This increasing pressure on input costs is likely to squeeze margins and reduce profitability for private sector firms, possibly impacting their capacity to invest and expand.

“In line with the trend in input costs, companies increased their selling prices sharply again in June. The pace of inflation quickened slightly from that seen in May,” Oni stated.

The head of equity research West Africa at Stanbic IBTC Bank also stated that the private sector activity was weak at the end of the second quarter of the year, as the Nigerian economy continued to grapple with elevated price pressures, high interest rates, and persistent currency weakness.