Inflation rates in the private sector of Nigeria continued to be high in November, which made doing business even more difficult. However, as the output decline slowed and new orders resumed growing, there were some encouraging signals halfway through the last quarter.
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However, in the face of intense pricing pressure, businesses continued to reduce their purchases, and employment was down. The Stanbic IBTC Purchasing Managers’ IndexTM (PMI®) is the survey’s headline figure. A rating above 50.0 indicates that business circumstances have improved from the previous month, while a reading below 50.0 indicates that things have become worse.
For the fifth consecutive month in November, the headline PMI fell below the 50.0 no-change mark, indicating a further decline in private sector business conditions. However, the most recent value, which was 49.6, indicated just a slight decrease and was higher than the October reading of 46.9. A restored expansion in new orders, which increased somewhat after a strong dip in October, contributed to the less noticeable decline in business conditions.
Businesses stated that high pricing frequently turned off clients, despite some hesitant indications that demand was improving. For the sixth consecutive month, business activity continued to decline due to the inflationary climate and weak demand dynamics. Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “The Nigerian private sector activities deteriorated further in November, albeit at a less pronounced rate relative to October.
The main cause of this less severe decline was the return to growth in new orders in November following a sharp decline in October. Notably, even though the most recent expansion was only slight, new orders have increased in three of the last four months.
While some panellists observed indications of increased demand, others stated that high prices once more served as a deterrent to buyers. Other factors contributing to the escalation of pricing pressures in November include rising energy prices, rising raw material costs, and persistent currency depreciation. As a result, input prices rose significantly in November as well, continuing to be among the highest on record and only somewhat slower than in October.
The Nigerian economy expanded by 3.46% year over year in Q3:24, compared to 3.19% year over year in Q2:24. Although the performance of the many sub-sectors that comprise the non-oil sector varied, it is noteworthy that the non-oil sector expanded by 3.37% year over year in Q3:24 from 2.80% year over year in Q2:24.
During the study period, the non-oil sector’s primary growth drivers were ICT, banking & insurance, trade, road transport, and agriculture. The composite PMI and non-oil GDP growth, however, seem to be at odds in recent quarters. This discrepancy was particularly noticeable in Q3:24, when the PMI for the quarter dropped to 49.6 points, indicating a worsening of business conditions, while non-oil GDP growth was robust during the review period. Historically, anytime the composite PMI falls below the 50-point no-change threshold, the growth of the non-oil GDP is somewhat negative.
With the help of a continued improvement in crude oil output and an increase in economic activity brought on by the holidays, we anticipate that the economy will continue to grow at the same rate as it did in Q3:24. Although some customers were put off by high pricing, businesses did report some encouraging indications of growing demand, according to the results of the November PMI survey. Overall, we project that the economy will expand by 3.24% year over year in real terms in Q4:24.
We also raise our growth projection for 2024 to 3.2% (previously: 3.1%). But the most recent cut was just slight. Sector statistics showed declines in wholesale & retail and services but rises in manufacturing and agricultural output. November saw another sharp increase in purchase expenses due to weakening currency and rising fuel and raw material prices.
For the second consecutive month, the rate of inflation slowed somewhat, but it was still high. As businesses assisted their employees with rising living and commuting expenses, staff expenditures also increased. Midway through the year’s last quarter, output prices also continued to grow significantly in reaction to rising input costs. In November, businesses cut back on their input purchases and inventories due to the low demand and high input costs.
Additionally, employment had decreased, bringing a stop to a six-month period of job creation. However, because primarily services firms saw a general decline in staffing numbers, the rate of reduction was rather slight. Businesses kept reducing their backlogs of work, and suppliers’ capacity was not under any pressure.
