The Central Bank of Nigeria (CBN) Purchasing Managers’ Indices (PMI) for the manufacturing and non-manufacturing sectors recorded stronger readings in March, expanding 56.7 and 57.2, compared to 56.3 and 56.1 in February.
The expansion in the manufacturing sector was notable as it marked a full-year (April 2017-March 2018) of growth in industrial activity, and the average PMI reading for the quarter (56.8) was also the highest recorded within that period, indicating accelerating recovery in the sector.
Likewise, non-manufacturing PMI came in more robust in March, bolstered by sturdier growth in Business Activity (55.6 to 58.7) and New Orders (53.7 to 55.8) during the period. Public Administration (87.5), Utilities (70.3), and Finance & Insurance (67.0) saw the largest improvements whilst construction declined marginally (49.7) following three straight months of expansions.
Key feature: Price pressure abating?
Prices rose again across both sectors, but at the weakest pace since the end of 2015, indicating a more sustained ease in underlying inflationary pressures in the economy.
Headline inflation has moderated significantly in recent times (from 17.8% y/y in February 2017 to 14.3% y/y in February 2018) albeit largely due to base effects and softening food price pressures, so this is a welcome pointer towards a more broad-based moderation in inflation. Meanwhile, manufacturing input prices (61.1) continue to rise faster than output prices (52.1), indicating that inflation is still of the cost-push variety and producer margins remain strained.
PMI signals strong economy, but policy stimulus still needed
PMI readings continue to point to a strengthening economy, though the absence of strong policy impetus is a threat to economic consolidation. In particular, underwhelming fiscal performance and tight monetary policy may constrain growth. We expect Q1’18 GDP to register at 3.4% y/y, driven mainly by oil production recovery and a weak base from Q1’17 when Nigeria was still in recession.
Michael Famoroti of Vetiva Capital Management Limited can be reached vide firstname.lastname@example.org
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