Economic Recovery in Full Swing as PMI Improves Further?

During the week, the Central Bank of Nigeria released the Purchasing Managers’ Index (PMI) data for May 2017. The survey which gauges sentiment in the Manufacturing and Non-Manufacturing sectors expectedly came in stronger with the Manufacturing composite index recording an increase for the 2nd consecutive month while the Non-Manufacturing composite index expanded above 50 points for the first time in 17 months as the positive impact of the improvements in FX management continued to boost business activities.

Manufacturing PMI in May expanded to a 26-month high, settling at 52.5 points (relative to 51.1 points in April). The improvement in the Manufacturing index was driven by increases in Production Level (58.7 points relative to 58.5 in April), New Orders (50.5 points relative to 50.1 in April), Raw Materials/WIP Inventories (50.8 points relative to 50.6 in April) and Employment Level (50.7 points relative to 46.6 points in April).

The impact of the improvement in FX liquidity and accessibility was evident in the performance of the Manufacturing sub-sectors as 10 of the 16 subsectors expanded in May. Primary Metal (64.5 points), Petroleum & Coal Products (62.1 points), Plastics & Rubber Products (60.7 points), Paper Products (57.7 points), Electrical Equipment (56.3 points), Appliances & Components (56.1 points), Textile, Apparel, Leather & Footwear (54.9 points), Cement (54.7 points), Food, Beverage & Tobacco Products (54.4 points) and Chemical & Pharmaceutical Products (53.0 points) all expanded while Transportation Equipment (45.0 points), Non-metallic Mineral Products (48.1 points), Fabricated Metal Products (48.8 points), Printing & Related Support Activities (48.9 points), Furniture & Related Products (49.0 points) and Computer & Electronic Products (49.7 points) contracted.

Similarly, the Non-Manufacturing PMI grew to 52.7 points (relative to 49.5 points in April) after 16 consecutive months of contraction. The major drivers of the composite index’s expansion were Business Activity (56.2 points), New Orders (53.2 points), Inventory (51.4 points) and Level of Employment (50.2 points). Furthermore, 10 of the 18 Non-Manufacturing sub-sectors recorded growth in May, an improvement from April data (8 of 18).

We believe the expansions in the Manufacturing and Non-Manufacturing sectors highlight the fact that the economic recovery is in full swing and we expect a positive feedback on Q2:2017 GDP numbers. Consequently, we forecast Q2:2017 GDP to settle at 0.7% which implies that the economy will be out of recession. Interestingly, the Employment sub-index of the Manufacturing and Non- Manufacturing sectors expanded for the first time in 2017, which suggests renewed optimism of business owners on the future economic conditions. Hence, we expect that sustained improvements in FX liquidity and ease of doing business will continue to drive expansion in business activities in the interim.