Nigeria’s Business Activity Expands Faster in Mar. ’19 as MPC targets decline in February inflation

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    Freshly released Purchasing Managers’ Index (PMI) survey report for March 2019 showed faster expansions in both the manufacturing and non-manufacturing businesses amid expectations that the Federal Government would shift its focus towards the economy following the conclusion of general election.

    According to the survey, the manufacturing composite PMI increased to 57.4 index points in March 2019 (faster than 57.1 in the preceding month), the twenty fourth consecutive expansion.

    The marginal rise in manufacturing composite PMI was driven by faster expansion in production level to 58.3 in March 2019 (from 57.5 in February 2019) despite the slower expansion recorded in new orders, to 56.7 in March 2019 (compared to 56.9 in Feb 2019) – possibly in anticipation of increased future demand in consonance with the anticipated implementation of the new minimum wage.

    Amid higher production level, the purchase of raw materials/inventories also increased – work in progress/inventory index rose to 57.1 (from 56.2 in the preceding month). In the same vein, rose hires were recorded by manufacturers as more workers were engaged for production purpose – the index for employment rose to 56.9 points (compared to 56.3 in Feb 2019).

    On the flip side, producers increased selling price – output prices expanded faster, to 62.3 (from 53.7) –, which partly accounted for the decrease in consumer demand despite slower rise in raw material prices – input prices fell to 57.6 (from 60.9 in Feb 2019).

    Also, stock of finished goods expanded faster, to 60.7 (from 55.4 in Feb 2019) given the inability of the producers to pass on the higher costs. Of the fourteen manufacturing sub-sectors surveyed, six sub-sectors (or 42.86%) recorded faster expansions (higher than five in the preceding month).

    Notably, manufacturers of ‘Cement’, ‘Food, beverage & tobacco products’ and ‘Fabricated metal products’ registered the sharpest expansion in activities of 64.2 (from 54.2), 61.7 (from 58.7) and 61.3 (from 53.2) respectively. Also, the non-manufacturing sector resumed its growth trajectory at a faster pace as the non-manufacturing composite PMI rose to 58.5 index points in March 2019 (from 58.4 index points in Feb 2019), the twenty third consecutive expansion.

    This was partly driven by faster expansion in incoming business to 58.9 (from 58.6). This necessiated the rise in inventory and employment level to 59.5 (from 58.2) and 57.8 (from 57.3) respectively. However, business activity expanded slower to 57.8 (from 59.7) as average price of inputs increased to 50.5 (from 50.3).

    Meanwhile, the Central Bank of Nigeria Monetary Policy Committee (MPC), after its 2-day meeting on Tuesday, March 26, 2019, voted to reduced the Monetary Policy Rate (MPR) by 0.50% to 13.50% from 14% whilst retaining the asymmetric corridor at +200 and -500 basis points around MPR. Cash Reserve Ratio (CRR) and Liquidity Ratio were left unchanged at 22.5% and 30% respectively.

    According to the Committee, Nigeria’s real sector growth in 2019 was expected to grow by 2.74% (higher than 2% and 2.2% forecasts by International Monetary Fund (IMF) and World Bank respectively) amid enhanced flow of credit to the real sector, CBN’s special interventions in growth-enhancing sectors (especially Agriculture) and effective implementation of the Economic Growth and Recovery Plan (ERGP).

    We note the increases in products prices and volume by producers ahead of the implementation of the minimum wage despite slower expansion in new orders amid higher output prices. This suggested that producers might have hoarded their products as we saw expansion in finished goods (to 60.7 from 55.4).

    We note the increases in products prices and volume by producers ahead of the implementation of the minimum wage despite slower expansion in new orders amid higher output prices.

    This suggested that producers might have hoarded their products as we saw expansion in finished goods (to 60.7 from 55.4). We opine that this practice could reverse the decline in February inflation.

    Nevertheless, the new minimum wage Bill, coupled with the reduction of the MPR (as monetary authority has signalled preference for growth amid favourable macroeconomic variables) should spur growth in 2019.

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