In the local economy, the May 2019 Business Expectations Survey (BES), conducted by Central Bank of Nigeria’s (CBN) staff from May 6-10, 2019 on a sample of 1,050 businesses nationwide, revealed that respondents expressed optimism on the macroeconomy for the month of May 2019 as the overall confidence index (CI) registered 29.7 index points (better than 29.2 registered in April).
Business outlook for June 2019 showed even greater confidence on the macro economy with 62.7 index points. This was the case, particularly for the construction, wholesale & retail trade and industrial sectors.
Businesses remained optimistic in their outlook on financial conditions (working capital) and average capacity utilization as their indices stood at 12.5 and 16.8 index points – although optimism paled compared to 16.1 and 22.6 respectively registered in April. Similarly, outlook on the volume of total order and business activity in May 2019 remained positive, but relatively weaker at 15.0 points each compared to 21.7 and 21.5 respectively in the preceding month.
The weaker optimism partly resulted from perenial businesses constraints of insufficient power supply, high interest rate and unfavourable economic climate; in addition to unclear economic laws and unfavourable political climate amongst other things. In the monetary sector, CBN depository corporations survey showed a 3.95% m-o-m increase in Broad Money to N35.17 trillion in April 2019.
This resulted from a 4.87% m-o-m rise in Net Domestic Assets (NDA) to N17.84 trillion, accompanied by a 3.02% increase in Net Foreign Assets (NFA) to N17.32 trillion. On domestic asset creation, the increase in NDA resulted from a 3.66% m-o-m rise in Net Domestic Credit (NDC) to N32.90 trillion, but was offset by a 2.29% m-o-m rise in Other Liabilities (net) to N15.06 trillion.
Further breakdown of the NDC showed a 3.35% m-o-m increase in Credit to the Government to N8 trillion and an increase of 3.76% in Credit to the Private sector to N24.90 trillion. On the liabilities side, the 3.22% m-o-m rise in Broad Money Supply was chiefly driven by the 8.62% m-o-m increase in treasury bills held by money holding sector to N7.60 trillion, a 2.67% rise in Quasi Money (near maturing short term financial instruments) to N16.32 trillion and a 2.82% increase in Narrow Money to N11.25 trillion (which was driven by a 4.05% increase in Demand Deposits to N9.53 trillion which offset the effect of a 3.54% decline in currency outside banks to N1.72 trillion).
Reserve Money (Base Money) climbed m-o-m by 9.69% to N7.95 trillion as Bank reserves spiked m-o-m by 9.69% to N7.95 trillion and currency in circulation upped by 0.25% to N2.16 trillion. On the foreign scene, United States Bureau of Economic Analysis reported a 3.1% increase in real gross domestic product (GDP) in the first quarter of 2019, according to a second estimate (down from an advance estimate of 3.2%).
The rise in Q1 2019 arose from positive contributions from personal consumption expenditure, private inventory investment, exports, state and local government spending, non-residential fixed investment and lower imports.
These were partly offset by negative contribution from residential fixed investment. We note that the weaker optimism of local businesses in May, coupled with the rather weak increases in purchasing managers indexes of both manufacturing (from 57.7 pts to 57.8 pts) and non-manufacturing indices (from 58.7 pts to 58.9 pts) in May (see our CRW for May 24, 2019), may be signalling weak economic growth for Q2 2019.
Historically, the second quarter has registered the weakest quarter-on-quarter (q-o-q) growth rates given a 9-year average of 2.96% compared to the third and fourth quarters with average growth rates of 8.93% and 3.92% respectively – although better than an average historical decline of 11.60% in the first quarter. Hence, given historical antecedents and low business optimism we expect weak Q2 2019 real sector growth, q-o-q.