Positive Outlook for 2018 as Nigeria PMI – 2017 hits Record-high PMI

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2017 rounds off with record-high PMI
Rounding off a strong final quarter of 2017, Nigeria’s Purchasing Managers’ Index (PMI) readings for both manufacturing and non-manufacturing sectors came in at record highs in December – registering at 59.3 and 62.1 respectively, compared to 55.9 and 57.6 in the previous month. Even accounting for the seasonal effect of stronger economic activity in December, the month’s PMI readings remain very impressive, especially considering the disruptions to fuel supply at the end of the year which we would have expected to take a toll on economic activity during the month.

Strong readings across key sectors
All manufacturing sub-indices expanded at a quicker pace in December, led by surges in Production Level (59.3 to 63.2) and New Orders (54.3 to 60.0). Meanwhile, Quantity of Purchases, a gauge of the amount of goods bought by manufacturers for use in the production process, increased in December (48.1 to 53.6). Though this is consistent with the December effect, it may also signal sturdier producer confidence in the buoyancy of consumer demand in the future.

The non-manufacturing sector recorded the first above-60 PMI reading on record, spurred by particularly strong Business Activity (59.4 to 67.4). Across the sub-sectors, Agriculture starred once again (78.3 to 73.3) and Arts, entertainment & recreation had a strong month (56.3 to 74.2), unsurprising given the higher levels of leisure activity and entertainment in December.

Key feature: Estimating Q4’17 GDP growth
At the moment, we see the PMI readings as evidence of improving sentiment in the economy – which is translating to greater economic activity – and expect this to be reflected in 2018 GDP. Our Q4’17 GDP growth estimate is 1.0% y/y, premised on growth in the agriculture and oil sectors – we expect sustained negative GDP growth across manufacturing and services. Although PMI readings for the quarter may suggest that our expectation is conservative, it must be said that Q3’17 GDP growth (1.4% y/y) diverged from positive PMI readings for that quarter – the non-oil sector actually contracted in Q3’17.

Positive outlook for Q1’18
We would be unsurprised if some of the recent fuel supply disruptions had an adverse effect on economic activities at the start of 2018. Overall, however, we are relatively bullish about the economy in the first quarter of the year. Q1’18 indicators will benefit from a high inflation base (Q1’17 average inflation: 17.9% y/y) and a low GDP base (Q1’17 GDP growth: -0.9% y/y) from Q1’17, added to ongoing fiscal stimulus and a favorable external environment. We forecast GDP growth of 2.4% y/y for the quarter.

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