Business activity in Nigeria reached its lowest point in seven months this June, according to the latest Purchasing Managers’ Index (PMI) report from Stanbic IBTC Bank.
The headline PMI dropped to 50.1 from 52.1 in May, indicating a near-stagnation in the Nigerian private sector.
The PMI readings above 50.0 signify an improvement in business conditions, while those below indicate deterioration.
The report attributes this slowdown to subdued demand and escalating price pressures, which have led to a deceleration in both output and new orders.
“June data signaled a broad stagnation of the Nigerian private sector as subdued demand and intense price pressures led to slowdowns in the growth of output and new orders. In turn, employment rose only fractionally,” the report stated.
There were clear signs of increasing inflationary pressures, with purchase prices, staff costs, and selling charges all rising more rapidly than in May.
The report highlighted that although new orders continued to rise, the rate of expansion was marginal and the weakest in the current seven-month growth period.
This sluggish demand was largely due to sharp price increases, which made it challenging for customers to commit to new projects.
“The Stanbic IBTC headline PMI dropped to a seven-month low of 50.1 points in June from 52.1 in May due to moderation in domestic demand amid the intensification of price pressures, leading to slowdowns in the growth of output and new orders,” said Muyiwa Oni, head of equity research West Africa at Stanbic IBTC Bank.
The PMI index, derived from a survey of 400 companies across agriculture, manufacturing, services, construction, and retail sectors, is a composite index based on five individual indexes with the following weights: new orders (30 percent), output (25 percent), employment (20 percent), suppliers’ delivery times (15 percent), and stock of items purchased (10 percent), with the delivery times index inverted to move in a comparable direction.
Oni further explained that new orders recorded near-stagnation as new business increased only marginally at the slowest pace in the current seven-month sequence of expansion.
Financial challenges at customers reportedly limited the ability of firms to fully benefit from any improvement in underlying demand.
“In line with the picture for new orders, output rose at a slower pace during June, settling at its weakest level in four months,” Oni added.
This downward trend poses challenges for the Nigerian economy, which has been grappling with various macroeconomic pressures.
The PMI findings come at a time when businesses in Nigeria are navigating through a complex economic landscape marked by inflation and a volatile global market.