According to the CBN monthly Manufacturing and Non-manufacturing Purchasing
Managers’ Index (PMI) report for the month of January 2020, Nigeria’s
manufacturing and Non-manufacturing sectors expanded for the thirty-fourth
(34th) and thirty-third (33rd) consecutive months respectively, albeit at a slower
rate when compared to that of December 2019. A PMI reading below 50 index
point indicates sector contraction; a PMI reading of 50 index points indicates neither growth nor contraction; while a PMI above 50 points indicates sector expansion.
According to the data released, the overall Manufacturing PMI reading for the month of January settled at 59.2 index points. This is 160bps lower than the 60.8 index point expansion recorded in December 2019. All the five major sub-components of the Manufacturing PMI experienced weak expansion, namely; Production Level (59.6 index point from 61.8 index point), New Orders (59.9 index point, from 61.5 index point), Supplier Delivery Time (59.1 index point from 60.5 index point), Employment Level (57.3 index point from 58.0 index point) and Inventory build-up (60.7 index point from 62.4 index point). This is in line with our expectation as the rally experienced by all the sub-components in December 2019 was as a result of the seasonality effect and not any drastic improvement in the broader macroeconomic environment.
Similarly, the Non-manufacturing PMI also expanded weakly by 59.6 index points as against 62.1 index points in the month of December 2019. The weak expansion was driven by slower growth in all the four (4) diffusion indices, namely; Business Activities (59.8 index point from 62.6 index point), Inventories (60.4 index point from 63.1 index point), New Order (59.4 index point from 61.9 index point), and Employment Level (58.9 index point from 60.8 index point).
Going forward, we expect the PMIs’ to tank further in the month of February 2020, owing to the joint effect of new VAT increase to 7.5%, persistent weak consumer purchasing power, and the high cost of borrowing impact of the increase in CRR of commercial banks to 27%.