Private Sector Halts 18 Months Expansion – Stanbic IBTC Researcher
The Head of Equity Research West Africa at Stanbic IBTC Bank, Muyiwa Oni, has said that the private sector output fell during June, halting 18 months of expansion as elevated costs weighed on consumers’ demand.
Oni said this while commenting on Stanbic IBTC Bank June Purchasing Managers’ Index (PMI), released recently.
According to him, the index signalled an improvement in private sector activity for the 24th consecutive month but noted that 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.
Indeed, overall input costs reached a four-month high in June, Oni said.
The Stanbic IBTC research head said, “Rising input costs will continue to threaten output, in turn adding further inflation pressures. We now see inflation averaging 18 per cent this year as supply-side challenges, amid domestic structural constraints, persist. Headline inflation has trended upwards for the fourth consecutive month reaching 17.71 per cent year-on-year (y/y) in June from 16.82 per cent y/y 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 per cent in 2022, persistent rise in inflation and FX illiquidity challenges continue serving as downside risks.”
In a statement on Wednesday, Stanbic IBTC Bank highlighted that while the index dipped to a 17-month low in June, output fell for the first time in 19 months, and new order growth moderated to the weakest for two years and overall input price inflation quickened to a four-month high.
“The Nigerian 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,” the bank stated.
On the price front, the bank said steep cost pressures persisted with overall input price inflation quickening to a four-month high.
“The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI®).
It explained when the index reads above 50.0, it signals an improvement in business conditions on the previous month, a deterioration while below 50.0.
“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 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. Firms overwhelmingly blamed weaker inflows of new work, but there were also mentions of cash shortages,” the bank further explained.
Meanwhile, new orders rose for the twenty-fourth month in a row even as 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 as firms reported higher purchase costs (particularly for fuel and raw materials) and rising staff costs, it stated
”Subsequently, and in line with weaker inflows of new work, purchasing activity rose at the weakest pace since January 2021. Stocks of purchases continued to rise sharply, however, and at a rate that was in line with the long-run series average. 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 25th successive reduction in backlogs. Shortages of some key parts resulted in the weakest decline in backlogs for 17 months, however. Finally, sentiment regarding output in the year ahead remained firmly in positive territory in June. Although some signs of soaring inflation weighed slightly on hopes with the degree of optimism moderating from May, Stanbic IBTC added
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