July 3, 2018/Vetiva Research
Data from the Central Bank of Nigeria (CBN) intimated positive signals for the Nigerian economy in June as the apex bank’s Purchasing Managers’ Indices (PMI) expanded at a quicker pace than in the preceding month.
Steady expansion across both sectors
Manufacturing PMI registered at 57.0, compared to 56.5 in May, and the quickest pace of expansion since January, buoyed by accelerations in Production Level (58.8 to 59.2), New Orders (54.4 to 56.2), and Employment Levels (55.2 to 55.4). On a more bearish note, Quantity of Purchases made by manufacturers contracted in the month, which may either indicate slowing demand growth or an expectation of weaker demand in the future.
Non-manufacturing also expanded at a slightly brisker pace (57.3 to 57.5), as Business Activity (58.7 to 59.1), New Orders (55.9 to 56.4), and Employment Levels (55.6 to 55.9) grew more robustly, whilst growth in Raw Material Inventories decelerated (59.2 to 58.5). Growth remained robust across non-manufacturing sectors, with fifteen of the seventeen recorded sectors registering expansions in June, led by Repair & Maintenance of Motor Vehicles (87.5) and Agriculture (69.2).
Key feature: Strong agriculture PMI despite violent realities
Agriculture PMI has remained robust in 2018 registering at 69.2 in June and averaging 62.7 in H1’18 – H1’17: 58.1, H2’17: 66.1. This is surprising given the challenges in the sector as a result of the violence in the Middle Belt which has reportedly displaced over 300,000 people (many of whom are employed in agriculture), and led to over 1,000 deaths already in H1’18 (peak: 1,376 in 2014). Moreover, we have seen some impact of this insecurity in agriculture produce – Q1’18 GDP growth was 3.0%, the slowest since Q2’13 – and in food prices – m/m Food inflation registered at 1.3%, the highest since July 2017. Given the scale of the problem and inference from other statistics, the bullishness of the PMI surveys suggests a measurement gap.
Conservative short-term outlook
No material change in economic momentum can be read from recent PMI data, so we are reserved in our expectations concerning economic performance in Q2’18 and Q3’18. The manufacturing sector should continue to grow, but the services sector would likely be weighed by large industries such as real estate. Meanwhile, the outlook for agriculture is weaker than it has been in a long time as a result of the crisis in the Middle Belt.