Nigeria’s Purchasing Managers’ Index (PMI), a metric for measuring the direction of the economy, climbed up from 53.38 to print 54 points in May, the highest since the beginning of the year.Thank you for reading this post, don't forget to subscribe!
PMI readings above 50 signals indicate an improvement in business condition in the previous month whereas below 50 reading points to a deteriorating condition.
In February when the cash squeeze hit the economy, the PMI reading, as conducted by the Stanbic IBTC Bank and adopted by the National Bureau of Statistics (NBS), printed 45 points, from nearly 54 in January. It dipped lower in March to near 42.
But with improved access to cash in April, business activity picked up pushing the PMI level to almost 54 points. The index is a summation of employment/capacity utilisation, purchasing orders, inventories, output/demand, prices and business expectations.
The latest survey says “recovery from the cash crisis continued in May.” New orders, according to the findings, reached a 13-month high last month while employment was up marginally amid a subdued outlook.
Whereas the rate of job creation was marginal, the report says there are signs of spare capacity in the private sector, which may have underscored the high political risk witnessed since the general election campaign.
It would be recalled that even after the election, there were reports of calls for interim government, while the two leading opposition parties went to court to challenge the outcome of the presidential poll.
The former president, Muhammadu Buhari, was compelled to publicly assure the country that he would hand over to the declared winner of the election, President Bola Ahmed Tinubu, while he encouraged the opposition to follow through with their court process.
After the May 29 inauguration, positive sentiments returned to the market with equities posting the strongest gain in about two years. It is, thus, no coincidence that last month’s PMI growth was the slowest since April 2020, the height of COVID-19 when the economy was in total lockdown.
“Nigerian companies signalled a second successive monthly rise in business activity in May as better access to cash helped to support the growth of new orders. Output was up sharply, albeit at a slightly softer pace than in April. Business activity increased across each of the four broad sectors covered by the survey, with growth led by wholesale and retail,” the report, released yesterday, states.
Output and new orders, it reveals, expanded for the second month running, with the latter increasing at the fastest pace in just over a year.It, however, observes that confidence “remained historically subdued,” meaning that firms continued to operate a cautious approach to hiring.
“Input costs rose sharply again, with output prices up accordingly. That said, the rate of selling price inflation eased to the weakest since April 2020,” it adds.
The two-month sequence of increase may be followed by a steeper rise as the new administration has taken bold steps to address historical setbacks to private capacity utilisation and capital inflow. For instance, Buhari, during his inaugural speech, disclosed clearly that there is no provision for premium motor spirit (PMS) subsidy.