As Sept. 2019 Manufacturing PMI Slows with Production Volume Drags, Analysts call for market friendly policies to attract private funds


Freshly released Purchasing Managers’ Index (PMI) survey report for September 2019 showed slower expansions in both the manufacturing and non-manufacturing businesses amid slower production level and slower new businesses indices.

According to the survey, the manufacturing composite PMI expanded slower to 57.7 index points in September 2019 (from 57.9 in August 2019), the thirtieth consecutive expansion.

Specifically, the decline in manufacturing composite PMI was due to slower expansion in production level index to 58.5 in September 2019 (from 58.7 in August 2019).

The decision by the producers to reduce their production output was partly informed by the sticky expansion in new orders – the index rose marginally to 57.2 in September 2019 (from 57.1 in August 2019).

Given the inverse relationship between volume and cost, the slow increase in new orders was engendered by the increase in selling prices – output prices expanded relatively faster, to 51.9 (from 50.3) as producers grappled with higher costs of production – the input prices index rose to 58.8 (from 57.0).

Amid the slowdown in production output, rising input costs and the faster expansion in stock of finished goods (index rose to 53.5 in September from 52.1 in August), raw materials/work-in-progress expanded slower, to 58.1 from 58.7 as the producers reduced their quantity of raw materials purchased – quantity of purchases index expanded slower, to 50.7 from 51.2.

Number of new hires recorded by manufacturers reduced in tandem with the lower production volume – the index for employment fell to 56.6 points in September 2019 (compared to 57.1 in August 2019).

Similarly, the non-manufacturing sector recorded sluggish growth as its composite PMI expanded slower to 58.0 index points in September 2019 (from 58.8 index points in August 2019), the twenty nineth consecutive expansion.

This was driven by slower expansion in business activity and incoming business to 57.2 (from 58.2) and 58.4 (from 59.6) respectively.

Business activity slowed amid average price of inputs which expanded faster to, 51.9 index points in September 2019 (51.2 index points in August 2019) which necessiated the decline in inventory level to 58.5 (from 59.8). On the flip side, employment expanded faster to 58.0 (from 57.8) despite the slowing business activity.

Meanwhile, President Buhari, in the course of the week, sent the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) to the National Assembly for approval.

The key assumptions of the proposed N9.79 trillion 2020 Budget [inclusive of Government-Owned Enterprises (GOEs) and Projects-tied Loans] as contained in the MTEF include: Crude-oil production of 2.18 million barrels per day (mbpd); oil price at USD55 per barrel (pb); N305/USD exchange rate; inflation rate of 10.81%; GDP Growth of 2.93%; N142.96 trillion Nominal GDP; and N122.75 trillion Nominal Consumption.

In order to fund the N9.79 trillion proposed expenditure in 2020, FG looked forward to generating revenue of N7.63 trillion from crude oil and taxes proceeds and to funding the deficit of N2.16 trillion (inclusive of GOEs and Project-tied Loans) from privatization proceeds (N0.13 trillion), multilateral/bilateral project tied-loan (N0.33 trillion) and other borrowings (N1.70 trillion).

The 2020 proposed spending was 2.78% lower than the N10.07 trillion (inclusive of GOEs and Project-tied Loans) 2019 Budget as signed by the lawmakers. We note that the sluggish increase in new orders and slower expansion in production outputs signal a possible slower economic growth in the near term.

Moreso, given the relatively flattish fiscal spendings by FG all through the three years stated in the MTEF, we do not expect to see any significant economic growth within the stipulated period, particularly in the absence of market friendly policies required to attract greater private capital (rather than increasing the country’s debt profile) so as to further consolidate on delivering quality infrastructure

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