The Nigerian economy expanded at its fastest month-on-month pace since January, according to the CBN Purchasing Managers’ Index (PMI). Manufacturing PMI registered at 57.1, from 56.8 in July, and Non-manufacturing PMI registered at 58.0, from 57.7 in July.
Producer price growth lags consumer prices
Quicker growth in manufacturing could be attributed to much higher production levels, new orders, and employment, while raw material/work-inprogress inventories slowed in August. Meanwhile, supplier delivery times improved at a weaker pace (56.8 to 55.9), which may point to an unexpected high volume of business activity which pressured logistics. We highlight that all manufacturing sub-sectors (bar Transportation Equipment) expanded in the month. Notably, prices rose again in August, but output prices rose at an even slower pace than input prices, suggesting that producers have been unable or unwilling to pass on high costs. The increase in non-Manufacturing PMI stemmed from higher new orders and employment levels as business activity and raw material inventories slowed in August.
Key feature: No noticeable change in exports
Despite’s Nigeria’s stated goal of export diversification, PMI numbers do not suggest any progress has been made on this front, with new export orders remaining sub-50 across both the manufacturing and non-manufacturing sectors. The Federal Government is banking on critical sectors such as agriculture and manufacturing to improve Nigeria’s long-term economic competitiveness and is aiding these through schemes such as the Export Expansion Grant (EEG) and establishing Export Processing Zones (EPZ). We note that efforts on this front have been relatively slow and Nigeria’s export profile is still dominated by a few crops.
Tepid times ahead
Stronger PMI numbers in August belie the weakness in economic sentiment, and the trend may reverse amid the headwinds of higher inflation which would further pressure costs and consumer wallets. However, implementation of the 2018 Budget and ramp up in campaigning should support demand, though this effect would be concentrated in a few sectors. Overall, we are not optimistic about near-term growth and reiterate our Q3’18 GDP growth forecast of 1.2% y/y.