Private Sector Growth Falls to 17-Month Low on Cash Shortages

Private sector growth slowdown in June as output falls for the first time in 19 months while overall input prices inflation quickened to a four-month high, according to Purchasing Manager Index released today.

According to a purchasing manager index released by Stanbic IBTC Bank, the Nigerian manufacturing purchasing manager index (PMI) dipped to a 17-month low in June, as new order growth moderated to the weakest in two years.

However, the PMI reveals that the private sector remained in growth territory at the end of the second quarter, although recent challenges around cash shortages led to weaker new order growth and a renewed decline in output.

As a result, business conditions improved at the weakest rate for almost a-year-and-a-half. Companies responded by raising their staffing levels, purchases and stocks of inputs at softer rates in June.

On the price front, steep cost pressures persisted with overall input price inflation quickening to a four-month high, according to the latest PMI note. At 50.9 in June, down from 53.9 in May, the headline PMI signalled a twenty-fourth successive monthly improvement in business conditions in Nigeria’s private sector.

That said, the report added the latest result was indicative of the weakest improvement for 17 months Central to the moderation was a renewed contraction in output which fell for the first time in 19 months.

Although marginal overall, the latest fall contrasted with sharp expansions in recent months, according to the report. It noted that firms overwhelmingly blamed weaker inflows of new work, but there were also mentions of cash shortages. Meanwhile, new orders rose for the twenty-fourth month in a row.

PMI report indicates that the rate of growth was marginal and eased to the softest in this sequence, however, elevated costs deterred some clients from placing orders. Turning to prices, overall input price inflation quickened from May and was the fourth-steepest in the series history. Firms reported higher purchase costs -particularly for fuel and raw materials- and rising staff costs.

Subsequently, and in line with weaker inflows of new work, purchasing activity rose at the weakest pace since January 2021. In June, the report stated that stocks of purchases continued to rise sharply, however, and at a rate that was in line with the long-run series average.

Private sector operators’ staffing levels rose for the seventeenth month in succession during June amid efforts to boost output. That said, the rate of growth was modest with some firms engaging in restructuring efforts. Modest expansions in new business, paired with another uptick in headcounts led to a twenty-fifth successive reduction in backlogs.

Shortages of some key parts resulted in the weakest decline in backlogs for 17 months while sentiment regarding output in the year ahead remained firmly in positive territory in June. Although there were some signs that soaring inflation weighed slightly on hopes with the degree of optimism moderating from May, the report stated.

Reacting to this, Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank said, “The Stanbic IBTC PMI signalled an improvement in private sector activity for a twenty-fourth consecutive month. However, the headline PMI index printed at 50.9 in June, down from 53.9 in May, with the latest figure at a 17- month low.

“Private sector output fell during the period, halting 18 months of expansion, while elevated costs weighed on consumers’ demand. Indeed, overall input costs reached a four-month high in June.

“Rising input costs will continue to threaten output, in turn adding further pressures on inflation. We now see inflation averaging 18% this year as supply-side challenges, amid domestic structural constraints, persist.

“Headline inflation has trended upwards for the fourth consecutive month reaching 17.71% year on year in June from 16.82% year on year in May.

“Rising diesel cost, petrol scarcity, domestic insecurity and supply-chain challenges in the global space still serve as an upside risk to inflation in the coming months.

“Sure, we forecast a real GDP growth of 3.2% in 2022, persistent rise in inflation and FX illiquidity challenges continue serving as downside risks.” # Private Sector Growth Falls to 17-Month Low on Cash Shortages.