For the third successive month in a row, the Central Bank of Nigeria (CBN) this week reported that one of the major leading macroeconomic indicators of the Nigerian economy, the composite Manufacturing Purchasing Managers Index (PMI), remained in contraction in July 2020 as the index settled at 44.9 index points.
The Manufacturing PMI is a measure of expansion (or contraction) in the manufacturing sector activities for a given month, based on the performances of its five-pillar sub-components – Production level, New orders, Supplier delivery time, Employment level, and Inventory.
According to the data released, save for Supply delivery time which expanded as the index printed at 56.4 points, the other sub-components settled below 50 index point threshold to drag the composite Manufacturing PMI lower.
This development which is a reflection of a slow recovery of the broader the macroeconomic environment from the disruption of the COVID-19 pandemic implies that the Nigeria economy is heading for a recession by Q3’2020.
In like manner, the composite Non-Manufacturing PMI, a measure of the performance of the other non-manufacturing sectors of the economy printed at 43.3 index points, to mark the fourth consecutive months of contraction.
Although there was a modest improvement, all the four pillar sub-components of the Non- Manufacturing PMI still settled below the 50 index points threshold, owing to the inadequate and weak transmission mechanism of the fiscal and monetary policies rolled out by the government and the CBN to rescue the economy from the crippling effect of the COVID-19 pandemic, rising domestic inflation, low crude oil price, and renewed exchange rate pressure.
We expect the PMI to remain pressured in the coming month as all the risk factors remain potent.
GTI Group Research