In July, the Nigerian private sector entered contractionary territory once more due to severe pricing pressures that affected demand and caused further declines in new orders and company activity.
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While there were indications that efforts to secure sales led to a slower pace of output price inflation, input costs and selling prices remained high. Confidence, meanwhile, fell to a new low. The Stanbic IBTC Purchasing Managers’ IndexTM (PMI®) is the survey’s main statistic. A rating above 50.0 indicates that business conditions have improved from the prior month, while a reading below 50.0 indicates a decline.
For the first time in eight months, the headline PMI fell below the 50.0 no-change threshold in July, posting 49.2 in July after rising to 50.1 in June. When the second half of the year began, the indicator indicated a minor decline in business conditions. The private sector’s health continued to deteriorate, mostly as a result of the first output and new order declines since November of last year.
But the rates of deterioration were quite low in both situations. Anecdotal evidence persisted in emphasising the detrimental effect that sudden price increases have on consumer demand, as clients are frequently unable or reluctant to commit to new projects.
In July, business activity decreased in three of the four main sectors included by the survey; manufacturing, on the other hand, showed a rise in production. At the beginning of the third quarter, selling prices increased significantly as businesses passed on rising input costs to their clients.
This was the case even as panellists said that they had reduced prices in an attempt to boost sales, causing the pace of inflation to slow to its lowest level since May 2023. “The Stanbic IBTC headline PMI declined for the second consecutive month to 49.2 points in July – its lowest level since November 2023,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank. Anecdotal evidence persisted in emphasising the detrimental effect that sudden price increases had on consumer demand, leading to further declines in both business activity and new orders.
Notably, output and new orders printed below 50.0, capping a seven-month expansionary trend and confirming a further deterioration in the private sector’s state of affairs.
Companies kept adding workers throughout the month, despite a fall in output and new orders. Furthermore, 2024 saw the strongest employment creation rate to yet.
In the meantime, the rate of inflation accelerated for the third consecutive month in July, reaching its sharpest level since March, while overall input prices continued to rise substantially. Even though output prices increased quickly in July, inflation was down from June’s level and at its lowest point since May 2023. The panellists associated higher input costs with higher selling prices.
However, other businesses reduced their prices in an attempt to draw in clients. Despite this, businesses continued to express overall confidence in the growth of their output over the upcoming year, citing plans for both branch and export expansion. Headline inflation may have peaked in June on an annual basis. Moderation is anticipated in H2:24 as the impacts of the large currency loss that accompanied the FX unification and the withdrawal of PMS subsidies, which raised fuel prices, faded.
This is expected to give consumers some respite, together with the start of the main harvest season in September, which is likely to assist a minor improvement in domestic economic activities in H2:24.” In July, there were additional increases seen in both purchase prices and labour costs. A four-month high was reached in purchase price inflation, which was partly caused by rising raw material costs but also by currency weakening. As businesses continued to support employees with increased living expenses, particularly those associated with transportation, the increase in employee expenses was essentially consistent with that observed in June.
Businesses’ confidence declined along with the output fall, reaching its lowest point since the survey’s inception. Nevertheless, due to plans for business expansion, companies continue to anticipate higher output in the upcoming year. Businesses cut back on their purchasing, which helped suppliers further reduce their delivery times by lowering their demand for inputs and requiring timely payments. In the meantime, input stocks rose.
Additionally, employment increased somewhat, with the rate of job creation speeding to the greatest level yet in 2024. For the second month in a row, backlogs of work were cleared thanks to increased workforce levels and a decrease in new orders.
