Rates of expansion remained slower than the respective series averages, however, as high prices continued to limit demand.

That said, there were further signs of inflation leveling off, with both purchase costs and selling prices rising at the slowest rates for a year.

The headline figure derived from the survey is the Stanbic IBTC Purchasing Managers’ Index (PMI).

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The headline PMI posted 52.1 in May, up from 51.1 in April and the highest since January. The latest reading signaled a modest improvement in business conditions in the Nigerian private sector, but one that was still less pronounced than the historical trend.

New orders increased solidly in May, extending the current sequence of growth to six months. Business activity was also up, and to the largest extent since January.

Muyiwa Oni, head of Equity Research West Africa at Stanbic IBTC Bank commented:

“The Stanbic IBTC headline PMI increased to 52.1 points in May from 51.1 in April – its highest level since reaching 54.5 points in January.

“This implies that Nigeria’s private sector activity maintained a better footing in May even as the rate of expansion remained slower than the series average as high prices continued to limit demand. Nonetheless, the purchase costs and selling prices increased at their slowest rates in a year, thereby supporting a sharper increase in both output and new orders relative to April”.

The Nigerian economy grew moderately by 2.98% y/y in Q1:24 from 3.46% y/y in Q4:23. From a structural perspective, the services sector remains the growth engine of this economy, contributing 83.2% to the real GDP growth rate, with industries and agriculture contributing 15.5% and 1.3% respectively to the real GDP growth.

As expected, the interest rate sensitive sectors experienced a slowdown in growth safe for the Manufacturing sector whose growth improved modestly, to 1.49% y/y, from 1.38% y/y in Q4:23 – albeit still lagging the 3-year average growth (2.40% y/y).

“The April and May headline PMIs point to a slight improvement in private sector activity in Q2:24, although still underwhelming compared to Q2:23.

“We expect domestic demand to remain weak relative to historical average, exacerbated by inflationary pressures which may likely peak in May. Besides, interest rates at unprecedented highs will continue to have a negative passthrough impact on the non-oil sector. However, because of an expected favorable base-effect induced oil sector’s growth, the overall economy is on course to grow by 3.51% y/y in real terms in Q2:24.”

Growth was recorded across all four monitored sectors, with the sharpest rise in manufacturing.

Anecdotal evidence pointed to improving customer demand amid signs of inflationary pressures easing. Although purchase costs continued to increase rapidly in May, largely due to currency weakness, the rate of inflation eased to a one-year low.

This was also the case with regard to selling prices. Staffing levels were broadly unchanged again, but efforts to help existing workers with higher living costs meant that employee expenses increased at a solid and accelerated pace midway through the second quarter.

The improvement in customer demand seen in May encouraged companies to expand their purchasing activity.

This, allied with positive expectations for future workloads, also led to an increase in inventories. Both input buying and stocks of purchases rose more quickly than in April.

Despite efforts to secure additional inputs, still high prices for materials meant that firms sometimes struggled to accumulate the necessary items to complete projects.

As a result, backlogs of work increased for the third consecutive month. Suppliers’ delivery times continued to shorten, with improved vendor performance linked to a range of factors including prompt payments and good arrangements with vendors in a competitive environment.

Lead times have shortened in each month since March 2023. Despite stronger expansions in output and new orders in May, business confidence waned and was the lowest since the survey nadir posted in February.

More than 43% of respondents remained optimistic in the year-ahead outlook for output, however, linked to plans for investment and business expansions, including the opening of new branches.

Both input costs and output prices increased at the sharpest rates on record, with rising prices impacting demand.

As a result, rates of expansion in output and new orders slowed sharply over the month, while employment decreased for the first time in ten months. Meanwhile, business confidence dropped to the lowest on record.

The headline figure derived from the survey is the Purchasing Managers’ Index (PMI®). Readings above 50.0 signal an improvement in business conditions in the previous month, while readings below 50.0 show a deterioration.

The headline PMI dropped markedly in February to 51.0 from 54.5 in January, remaining above the 50.0 no-change mark for the third month running but only just.

The improvement in business conditions was the weakest since the recovery in the private sector began last December.

Input costs surged higher in February, often as a result of exchange rate weakness, which drove up material costs, but also higher fuel prices.

The latest rise in overall input costs was by far the sharpest since the survey began in January 2014, with around 78% of respondents signaling an increase over the month.

Similarly, output price inflation also hit a fresh record high in February as firms passed through rising input costs to their customers.

Steep price pressures acted to limit new orders in the private sector. Although new business increased for the third successive month amid some positive signs of underlying demand, the rate of expansion slowed sharply and was the weakest in this sequence. This was also the case with business activity, which increased only slightly. Rising activity in the agriculture and services sectors contrasted with falls in manufacturing and wholesale & retail.

Muyiwa Oni, head of Equity Research West Africa at Stanbic IBTC Bank commented:

“Stanbic IBTC Bank headline PMI slowed to its weakest level since Dec 23, moderating remarkably to 51.0 in Feb from 54.5 in Jan. Employment level dropped below the 50.0 no-change mark for the first time in 10 months while the output and new order’s expansion both weakened significantly in the month. These weaknesses were in line with the sharp local currency depreciation, increase in fuel prices, and rapidly rising food costs in February, thereby driving overall cost pressures in the month. These lingering pressures may push domestic demand low, limiting growth potentials in Q1:24. “

Signs of weakness in the private sector led companies to lower their staffing levels for the first time in ten months, albeit marginally.

Purchasing activity was also scaled back following a marked expansion in the previous survey period.

Firms were able to keep on top of workloads, however, and reduced outstanding business for the first time in three months. A desire to be able to respond to new orders in a timely manner meant that companies continued to increase their inventories. Meanwhile, suppliers’ delivery times shortened again.

Unprecedented inflationary pressures amid currency weakness and signs of demand softening meant that business confidence dropped to the lowest on record in February.

Firms remained optimistic regarding the year-ahead outlook for activity, however, often reflecting business expansion plans and hopes for an improvement in economic conditions.

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The recovery in the Nigerian private sector gathered momentum at the start of 2024, with rates of expansion in output and new orders accelerating sharply.

Purchasing activity also expanded markedly, but difficulties paying staff meant that the rate of job creation eased, contributing to a rise in backlogs of work.

Meanwhile, rates of inflation remained elevated but softened from December. The headline figure derived from the survey is the Stanbic IBTC Purchasing Managers’ Index (PMI).

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The headline PMI rose to 54.5 in January from 52.7 in December, above the 50.0 no-change mark for the second month running and signaling a solid improvement in the health of the private sector.

In fact, the strengthening of business conditions was the most pronounced in just over a year.

The recovery in new orders which began in December gathered momentum in January amid reports from panelists of strengthening demand. New business increased sharply, and to the largest degree since April 2022.

Business activity also rose for the second successive month in January and at the fastest pace in 21 months.

All four broad sectors covered by the survey posted improvements in output. In turn, companies also expanded their purchasing activity at a sharp pace, with stocks of inputs up accordingly.

Firms were helped in their efforts to secure inputs by quicker deliveries from suppliers. Shorter lead times reflected good relationships with vendors, prompt payments and quiet traffic conditions.

The accumulation in stocks of purchases in part reflected plans for further improvements in output in the coming months. Companies remained optimistic that output will increase over the year ahead and were more confident than in December.

That said, sentiment remained relatively muted. Bucking the wider trend of a strengthening recovery, employment increased at a softer pace in January amid some reports that firms had faced challenges paying staff.

This contributed to a second successive monthly rise in outstanding business. Backlogs increased slightly, but at a faster pace than in December. Rates of inflation remained elevated in January, but showed some signs of easing.

Purchase prices rose at the softest pace in eight months, but currency weakness and higher costs for fuel and raw materials meant that inflation remained elevated.

The rate at which staff costs increased was broadly unchanged from December as firms helped workers with higher living costs, particularly those related to transportation.

Matching the trend for input prices, the rate of output charge inflation remained elevated but eased to an eight-month low at the start of 2024.