Nigeria Economy | |
Nigeria Economy | |
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Thursday, February 01, 2018 /5:20 PM /Cordros Capital
Yesterday, the
Central Bank of Nigeria (CBN) released its Purchasing Managers’ Index (PMI)
report for the month of January, showing that manufacturing and
non-manufacturing activities remained healthy during the month, posting
expansions of 57.3 and 58.5 respectively.
Whilst
acknowledging that both manufacturing and non-manufacturing PMIs expanded at a
slower rate (relative to December, which is always flattered by seasonality)
during the review period, we reiterate that the survey result continues to show
that business owners and manufacturers are more optimistic about the prospects
of the broader economy than a year ago.
For insight,
compared to January 2017, both manufacturing and non-manufacturing PMIs have
improved (from contractions of 48.2 and 49.4 respectively) by 910 bps apiece.
Plus, the latest data show the highest year start indices for both PMIs within
the scope of available data from the CBN. As a leading indicator, January 2018
composite PMI suggests business activities kicked off the year on a positive
note, and signals sustained expansion in output growth.
Clearly, the
continued strengthening in the survey result is consistent with notable
positives in the overall economy, including (1) the apex bank’s sustained
commitment to forex stability, which has helped narrow the spread between the
official and parallel segments of the currency market rates, (2) broadly
positive expectation of output growth in the fourth quarter of the year, and
indeed 2018 (3) improving inflationary conditions, with headline inflation rate
moderating to 15.37% in December (from 15.90% in November), and (4) rallying
crude oil prices.
Manufacturing PMI
The manufacturing
PMI kicked off the year on a positive note, expanding to 57.3 (highest year
start since available data) in the review period, from a record-high 59.3 in
December. The slower pace of expansion in the manufacturing segment is
attributable to slowed growth in the major sub-indices that make up the
manufacturing PMI – production level (59.6, previously 63.2), new orders (58.3,
previously 60.0), supplier delivery time (56.8, previously 57.4), employment
level (53.3, previously 53.9), and WIP inventory (57.7, previously 61.1). The
sustained stability of the naira exchange rate, coupled with the widely
positive outlook for the currency, remains a major driver of the sustained
expansion in the composite manufacturing PMI.
Of the 16
subsectors, 13 reported growth in the review month in the following order:
computer & electronic products; nonmetallic mineral products; cement;
textile, apparel, leather & footwear; printing & related support
activities; appliances & components; primary metal; petroleum & coal
products; food, beverage & tobacco products; furniture & related
products; paper products; fabricated metal products; plastics & rubber
products. The electrical equipment; chemical & pharmaceutical products; and
transportation equipment subsectors contracted in the review month.
Non-Manufacturing
PMI
Similar to the
manufacturing PMI, non-manufacturing PMI increased at a slower pace of 58.5
(vs. record-high 62.1 in the previous month) in January, following decelerating
growth in the major sub-indices that make up the composite index. Specifically,
expansions in business activity slowed to 61.3 (from 67.4) while level of new
orders recorded 58.2, compared to 62.2 in December. Also, employment level was
lower at 55.1 (55.7 the previous month), while inventory expanded to 59.5,
below January’s 62.9.
Sixteen of the 18
non-manufacturing subsectors recorded growth in the following order: public
administration; repair, maintenance/washing of motor vehicles; educational
services; water supply, sewage & waste management; transportation &
warehousing; real estate rental & leasing; arts, entertainment &
recreation; information & communication; agriculture; finance &
insurance; professional, scientific, & technical services; wholesale/retail
trade; health care & social assistance; electricity, gas, steam & air
conditioning supply; utilities; construction; and management of companies. The
management of companies remained unchanged, while the accommodation & food
services subsector recorded contraction in the review period.
Comment:
January 2018 PMI
figures, despite reflecting slowed growth in both manufacturing and
non-manufacturing segments, show a good start to the year. We believe the
composite PMI will remain strong through 2018, as the impact of the positive
drivers supporting the encouraging figures deepens further. To be clear, we
highlight the (1) CBN’s sustained commitment to forex stability, (2) a rebound
in aggregate demand, with inflationary pressure moderating further as exchange
rate and energy prices post no negative surprises, in addition to (3) a pickup
in government spending, in line with the 2018 budget. Particularly on forex,
suffice to say that confidence has further strengthened vis-à-vis the near term
outlook of the domestic currency amid continued healthy accretion to the
nation’s foreign reserves which currently stands at a high of USD40.63 billion,
with oil prices extending rally to USD69.63/barrel, and increasing crude
production (1.86mb/d, according to available data from OPEC).
Related
News
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PMI Stands at 57.3% in January 2018 from 59.3% in December 2017
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12. Manufacturing
PMI Stands at 55.3% in September 2017 from 53.6%% in August 2017 - CBN
13. PMI
Reading Rose to 58.5 Points in August from 56.3 Points in July
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15. Manufacturing
PMI Stands at 53.6% in August 2017 from 54.1% in July 2017 - CBN