ECONOMY: Sustained Rise in PMIs in the Last Three Months of 2019 Suggest Better Economic Growth…

A gas station attendant displays a large bundle of naira banknotes after selling fuel to a customer in Port Harcourt, Nigeria, on Friday, Jan. 15, 2016. With his security forces engaged in fighting Boko Haram's Islamist insurgency in the north, President Muhammadu Buhari can't afford renewed rebellion in the delta. Photographer: George Osodi/Bloomberg

Recently released Purchasing Managers’ Index(PMI) survey report by Central Bank of Nigeria
(CBN) showed faster expansions in both manufacturing and non-manufacturing businesses in December 2019 as production level
and new orders indices further grew faster.

According to the survey, the manufacturing composite PMI expanded faster to 60.8 index
points in December (from 59.3 in November), the sixteenth consecutive expansion.

Specifically, the growth in manufacturing composite PMI was due
to faster expansion in production level index to 61.8 in December 2019 (from 60.1 in November 2019) which was propelled by expansion in new orders – the index increased to 61.5 in December 2019 (from 59.4 in November 2019).

Producers stimulated demand as their selling prices grew slower (output price index declined to 51.9 from 53.1) even as costs of production expanded slower, but marginally shrinking producers’ margins, (input price index fell to 59.2 from 59.3).

Suppliers of raw materials improved on delivery time of inputs despite increased production level – supplier delivery time index rose to 60.5 in December (from 58.7 in November).

Amid improvement at the suppliers’ end, raw materials/work-in-progress expanded faster, to 62.4 from 60.6 as the producers increased their quantity of raw materials purchased – quantity of purchases index expanded faster, to 57.0 from 55.8. Given the slower increase in selling prices, we saw stock of finished goods expand slowly – its index expanded slower to 52.8 in December from 53.1 in November 2019 amid improved consume demand.

Number of new hires recorded by manufacturers increased in tandem with the higher production volume – the index for employment rose to 58.0 points in December 2019 (compared to 57.7 in November 2019).

Of the fourteen manufacturing sub-sectors surveyed, thirteen sub-sectors (or 92.86%) recorded faster expansions, sustaining the same performance it printed in November 2019.

Particularly, manufacturers of ‘Petroleum & coal products’, ‘Plastics & rubber products’ and ‘Food, beverage & tobacco products’ registered the sharpest expansion in activities of 75.8 (from 69.4), 66.3 (from 62.4) and 63.7 (from 61.1) respectively.

Meanwhile, the non-manufacturing sector recorded sustained expansion as its composite PMI rose to 62.1 index points in December 2019 (from 60.1 index points in November 2019), the fifteenth consecutive expansion.

This was driven by faster expansion in business activity and incoming business to 62.6 (from 60.0) and 61.9 (from 60.7) respectively.

Business activity expanded despite average price of inputs which expanded faster to, 56.0 index points in December 2019 (54.6 index points in November 2019); however, service providers still stockpiled as inventories rose to, 63.1 (from 61.5).

Similarly, employment expanded faster to 60.8 (from 58.4) amid increase in incoming business. Of the seventeen manufacturing sub- sectors surveyed, fifteen sub-sectors (or 88.24%) recorded faster expansions, recording a better performance than the six (35.29%) it printed in November.

Notably, service providers of ‘Management of companies’, ‘Repair, Maintenance/Washing of Motor Vehicles’, and ‘Water supply, sewage & waste management’ registered the sharpest expansion in activities of 75.0 (from 62.5), 72.7 (from 66.5) and 69.4 (from 56.3) respectively.

Nigeria’s Composite Purchasing Managers’ Index
65.00 62.50 60.00 57.50 55.00
Source: CBN, Cowry Research
Manufacturing Composite PMI
Non-Manufacturing Composite PMI
We note that the upward trend in composite PMIs over the last three months in the fourth quarter of 2019 is suggestive of possible higher economic growth rate in 2019.

Particularly, sustained growth in new orders and production level further underscores that growth was volume driven amid reduced selling prices.

Nevertheless, we feel economic growth in the first quarter of 2020 would hang in the balance of increasing taxes and the speed of implementaion of capital projects which is expected to boost new demand despite the 50% hike in VAT.