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Tuesday, June 02, 2020 / 11:28 AM / By CSL
Research / Header Image Credit: CSL Research
The Purchasing Managers Index (PMI) data released by the
Central bank of Nigeria (CBN) for the month of May showed significantly
weakened activity levels. Although, no data was provided for the month of April
(the period of full lockdown in Lagos, the epicenter
of economic activities), the data for May in our view still
reflects the full impact of the global pandemic. Specifically, Manufacturing
PMI declined from 51.1 in March to 42.4 in May, the lowest level since
September 2016. However, the impact of social
distancing measures was more pronounced in the
Non-manufacturing PMI, which declined significantly from 49.2 in March to 25.3
in May, the lowest level since the apex bank began compiling the data in July
2014.
Notably, the data revealed that, of the 14 surveyed
subsectors in the manufacturing sector, only the electrical equipment sector
reported growth. Save for Supplier delivery time (+15.8) which grew on the back
of reduced delays from suppliers, we observed deep contractions in the
remaining four indices used in gauging the manufacturing sector; Employment
level (-22.6), Raw materials/WIP Inventory (-12.0), Production level (-9.9) and
New orders (-9.5).We believe the combination of supply chain disruptions, FX
challenges, slowdown in production runs and reduced demand from customers
dampened manufacturing activities.
Like the manufacturing-PMI, the non-manufacturing PMI
also showed steep decline across the four key metrics; Business Activity (52.2
to 19.5), Inventory level (49.6 to 30.1), Level of new orders (47.8 to 19.6),
and Employment level (47.3 to 32.0) used in gauging activity level. We believe
the deterioration in the sector is a fallout of the effect of subdued economic
activities and continued adoption of social distancing measures which hindered
the free movement of people and patronage of entertainment or recreational
centres.
Despite the partial easing of the lockdown measures
and stimulus measures from the monetary authority, we expect activities to
remain soft in the short term due to weak demand which will continue to weigh
on inventories, production runs, employment level, imports of raw materials and
backlog of orders.
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