The Nigerian private sector showed a slight deceleration in growth in June, with the Purchasing Managers’ Index (PMI) dropping to 51.6 from 52.7 in May.
This is according to the latest Stanbic IBTC Bank Purchasing Managers’ Index™ (PMI) report.
The figure marked the slowest expansion in the last seven months, yet business sentiment remained strong, reaching its highest level since August 2022.
The report read, “The headline PMI remained above the 50.0 no-change mark for the seventh consecutive month in June. That said, at 51.6, the reading was down from 52.7 in May and the lowest in the current growth sequence.”
Slower output growth amid optimistic outlook
The PMI, a crucial indicator of business conditions, remained above the neutral 50.0 mark, signaling an overall improvement in private sector activity. However, the latest reading of 51.6 represents a notable slowdown in output growth, which had been accelerating earlier in the year. The decline in manufacturing output was particularly sharp, with activity in other sectors continuing to rise, albeit at a reduced pace.
“Business conditions remain in expansionary territory for the seventh consecutive month, but the pace of expansion has slowed for the third consecutive month after peaking in March,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank. “The headline PMI settled lower at 51.6 points in June from 52.7 points in May, which is below this year’s average PMI print of 53.1 points.”
The slowdown in output growth reflected a fall in manufacturing production, which saw activity drop sharply. Manufacturing’s contribution to the overall PMI was a key factor in the reduced expansion rate. Despite this, the services and construction sectors maintained their growth trajectory, even though their rates of expansion also eased.
While output growth softened, new business continued to expand solidly, albeit at a slower pace, indicating that demand pressures have eased somewhat. Firms that reported increased activity attributed this to new orders and customer acquisitions.
Business confidence soars to highest level since August 2022
Despite the slower growth, Nigerian businesses are increasingly optimistic about the year ahead. The 12-month outlook for future output surged to 83.9 points in June, up from 70.9 in May, marking the highest level since August 2022. This optimism was linked to expectations of increased investment in operations and expansions.
The significant rise in business confidence suggests that companies are bracing for potential improvements in both the domestic and global economy. In particular, respondents to the PMI survey were hopeful that available financing would support the expansion of operations, fueling a brighter economic future.
Inflationary pressures easing, but prices remain high
One of the most notable trends in the June PMI report was the continued easing of inflationary pressures. While inflation rates remain relatively sharp, cost pressures appear to be softening, with companies raising their output prices at the slowest pace in over two years. This is the second consecutive month of slower inflation, signaling that businesses are adjusting to new economic conditions.
Despite this, the manufacturing sector reported the fastest increase in output prices, as firms continued to pass on higher input costs to consumers. However, this was tempered by the overall slowdown in price hikes across other sectors, suggesting that cost increases are becoming more manageable.
The report revealed that the slower rate of price increases was linked to improved conditions in raw material costs and a more stable supply chain. This softening of input cost pressures, alongside slowing inflation, is providing some relief to businesses as they continue to navigate a challenging economic landscape.
Stable employment and purchasing activity
Staffing levels were kept broadly stable in June following a marginal reduction in May. Companies that increased staffing levels did so primarily to manage workloads, especially given the challenges posed by a mixed demand environment. While some sectors experienced increased activity, others faced a slowdown in demand, which discouraged new hires in certain industries.
Purchasing activity continued to rise in June, but, like output growth, the pace slowed. Respondents cited concerns over the slower growth of new business as a factor in the reduced pace of purchasing. The PMI report highlighted that businesses were cautious in their purchasing decisions, potentially in response to softer demand conditions and ongoing uncertainties.
The report also revealed that backlogs of work continued to increase for the third consecutive month, though at a modest pace. Companies reported that shortages of materials, delayed payments from customers, and power supply issues were contributing to higher levels of uncompleted work.
Some firms indicated that the sluggishness in backlog clearing was exacerbated by logistical challenges, including poor road conditions and delays in supplier deliveries.
The PMI survey indicated that supplier delivery times were largely unchanged in June, ending a period of shorter lead times that had been observed since March 2023. Although the overall delivery time remained stable, businesses highlighted that disruptions in the supply chain were still a key challenge, particularly for those relying on timely deliveries of raw materials.
