Recently released Purchasing Managers’ Index (PMI) survey report by Central Bank of Nigeria (CBN) showed that both manufacturing and non-manufacturing businesses in May 2020 contracted as new orders and production level indices plunged amid negative effect of COVID19 pandemic.
According to the survey, the manufacturing composite PMI contracted to 42.4 index points in May (from 51.1 in March), following the thirty-sixth consecutive month of expansion. The contraction in manufacturing composite PMI was due to decline in new orders index to 42.8 in May 2020 (from 52.3 in March 2020), which resulted in lower production – the production index decreased to 44.5 (from 54.4).
Given the significant drop in New orders and production quantity, selling prices of goods increased (output price index rose to 53.2 in May 2020 from 53.0 in March 2020); albeit, lower average costs of production were recorded (input price index moderated to 61.4 from 62.6).
Supplies of raw materials to manufacturers were swift amid slower production level – supplier delivery time index rose to 65.2 in May (from 49.4 in March).
Amid lower production level and slower demand, raw materials/work-in-progress contracted faster, to 37.4 from 49.4, even as producers reduced their quantity of raw materials purchased – the quantity of purchases index contracted, to 26.3 from 55.6.
We saw the stock of finished goods moderate – its index contracted to 39.6 in May 2020 from 50.3 in March 2020 despite slow sales. The number of new hires recorded by manufacturers declined in tandem with the lower production volume – the index for employment fell to 24.5 points in May 2020 (compared to 47.1 points in March 2020).
Of the fourteen manufacturing sub-sectors surveyed, only one sub-sector (or 7.14%) recorded faster expansion, lower than the three (or 21.43%) printed in March 2020 – manufacturers of ‘Electrical equipment’ registered expansion inactivity, of 50.8 (from 34.0).
Meanwhile, the non-manufacturing sector recorded faster contraction as its composite PMI fell to 25.3 index points in May 2020 (from 49.2 index points in March 2020), the second consecutive contraction. This was driven by suppressed business activity and incoming business to 19.5 (from 52.2) and 19.6 (from 47.8) respectively.
Business activity and incoming business shrank despite a fall in the average price of inputs, to 42.6 index points in May 2020 (from 51.2 index points in March 2020). Service providers’ inventories fell further, to 30.1 (from 49.6), despite slower incoming business.
Also, the employment index point contracted, to 32.0 (from 47.3) amid slower business activity. Of the seventeen non-manufacturing sub-sectors surveyed, none recorded faster expansion, showing a worse performance in March when nine (or 52.94%) was printed.
On the foreign scene, the United States crude oil input to refineries rose further week-on-week by 2.43% to 13.31 MB/d as at May 29, 2020 (but 27.29% lower than 16.94 mb/d as at May 31, 2019) while refinery capacity utilization continued to rise higher to 71.8% from 71.3% in the preceding week (but remained less than 91.8% as at May 31, 2019).
Also, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell w-o-w by 0.39% to 532.35 million barrels (but rose by 10.16% from 483.26 million barrels as at May 31, 2019). On a weekly basis,
WTI crude rose by 18.35% to USD38.11 a barrel while Brent crude rose by 19.60% to USD41.00 a barrel; also, Bonny Light crude spiked by 14.99% to USD38.27 a barrel as at Thursday, June 4, 2020.
We expect negative growth in Nigeria’s Q2 2020 real GDP, given the sharp decline in May 2019 PMIs – a leading economic growth indicator. Meanwhile, speedy recovery from the anticipated recession will largely depend on the effectiveness of CBN’s expansionary policies and FG’s spendings to boosting Nigerians’ purchasing power.
Cowry Asset Research