Economy on the Path to Recovery as Purchasing Managers’ Index Expands

The Central Bank of Nigeria (CBN) recently released Purchasing Managers’ Index (PMI) survey report for the month of June and expectedly, the recent improvements in business and investment sentiment were evident in the responses of business managers to the survey. Following the improvements in FX market liquidity which trailed the launch of the Investors’ & Exporters’ (I&E) FX window, activities in the manufacturing sector have strengthened as the manufacturing PMI expanded for the third consecutive month, rising to 52.9 in June relative to 52.5 in May. The expansion was majorly due to faster increases in Inventory (52.3 against 50.8 in May), Employment (51.1 against 50.7 in May), New Orders (51.0 against 50.5 in May) and Supplier Delivery time (50.3 against a contraction in May) which offset the impact of the slower pace of expansion in Production level (58.2 relative to 58.7 in May).

In the same vein, non-manufacturing sector sustained the momentum garnered in May, as June PMI was estimated at 54.2 relative to 52.7 in May, signalling the second consecutive month of expansion in activities. The four sub-indices of the Composite measure including Business activity (57.0 relative to 56.2 in May), New orders (54.6 relative to 53.2 in May), Employment (53.4 relative to 50.2 in May) and Inventories (51.8 relative to 51.4 in May) expanded at a faster pace to put the recovery ongoing in the sector beyond doubt.

Following three consecutive increases in PMI reading, our forecast that the economy will record positive GDP growth as early as the second quarter of the year is further reinforced; accordingly, we estimate Q2:2017 GDP growth at 0.6%. Noteworthy is the fact that the recent improvements in the business environment coincide with the launch of the I&E FX window as well as higher oil prices and domestic crude oil production which have both culminated in increased FX supply. As the economic recovery is still fragile, the business cycle going forward will remain anchored by stability in the Niger Delta, developments in the oil market and domestic FX policies.