Economic activity improved in September with Purchasing Managers’ Index (PMI) numbers showing strong readings across both the manufacturing and non-manufacturing sectors. Manufacturing activity expanded at a record pace of 55.3 in September (August: 53.6) amidst stronger growth in all components of the index, indicating the widespread improvement in industrial activity in the country. Non-Manufacturing PMI was similarly strong in the month (September: 54.9; August: 54.1), expanding at the quickest pace in nearly three years. Business Activity (56.8) and Incoming Business (55.4) were particularly strong in this sector as underlying consumer demand firmed up during the month.
Across non-manufacturing sub-sectors, Agriculture (60.6), Utilities (68.4), and Finance (57.3) continued to experience the most significant improvements, supported by development finance initiatives, low energy prices, and stability in the foreign exchange market. Meanwhile, Real Estate activity (51.8) bounced back in September, though construction (44.9) still remained weak amidst stalling capital expenditure (capex) disbursements.
Non-oil exports remained weak – contracting at a quicker pace across both manufacturing and non-manufacturing sectors – underpinning the Federal Executive Council’s desire to execute the Zero-oil initiative by kicking off a special Export Promotion Committee steered by the council. Furthermore, Nigeria looks unlikely to be out of the woods on the inflation front as strong pricing pressures persisted in September.
Key feature: Employment on a roll
With national unemployment and underemployment rates last recorded at 14.2% and 21.0% respectively at the end of 2016, Nigeria’s labour market has been under severe strain. Recent PMI numbers suggest a softening picture however, especially in the manufacturing sector as Employment Levels (52.8) expanded at a record pace in September. Federal Government job creation schemes such as the N-Power program have achieved only modest success so far, so the private sector must pick up the slack if the national 15-million job creation target is to be met by 2020.
PMI readings point to strong Q3’17 GDP growth
Consistent improvement in economic activity in Q3’17 indicate another quarter of positive GDP growth. We expect annual GDP growth of 2.5% for the quarter, boosted by stronger oil output, steady improvements in industrial activity, and a weaker Q3’16 base. Meanwhile, anticipated capex disbursement should be a boon in Q4’17, along with softer labour market conditions which could prove a mini-catalyst for consumer demand in the economy.