Economic meltdown bites harder on private sector in August – Report

The report from the Economists at Stanbic IBTC Bank has shown that Nigerian business conditions had worsened for the sixth time in seven months in August 2016 as Nigeria’s private sector was firmly entrenched in a downturn during the period.

The severity of the contraction was highlighted by employment data, which pointed to job losses for the first time since the series started in January 2014.

Purchasing activity also decreased, amid doubts among firms about the near-term demand outlook. Meanwhile, currency weakness and rising costs led companies to raise their charges further.

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

After showing signs of easing in July, Nigeria’s private sector downturn deepened in August. This was signalled by the seasonally adjusted Stanbic IBTC Bank Nigeria PMI falling from 48.8 to a record low of 46.3. It was the sixth sub-50.0 reading in the past seven months.

Commenting on August’s survey findings, Ayomide Mejabi, Economist at Stanbic IBTC Bank said: “After a modest deterioration in business conditions in July, the Stanbic IBTC Bank PMI for August signalled a faster contraction reaching a survey record low of 46.3. The brief relief experienced in July was probably a result of improved market sentiment following the introduction of reforms in the foreign exchange market, which were aimed at attracting foreign capital flows that are needed to boost domestic investment.

The PMI readings for July and August suggest that the economic contraction experienced in the first half of the year may still have some way to go as the foreign exchange market struggles to clear out the FX backlog overhang. The effects of the continued FX supply-demand imbalance appeared to be anecdotally confirmed by the output PMI index which fell to its lowest in the history of the survey. The substantial number of survey respondents who reported a downturn in output due to weakening demand and the weakening naira suggests that it could take a while before conditions improve. The slowing pace of increase in the output prices PMI index suggests that inflation may have eased in August.”

A key driver of the overall contraction was falling output in August. Activity has dropped in every month since February, with the latest decline the most marked in the series history. Subdued underlying demand was cited as the main reason for lower output. Some panellists also blamed currency weakness, particularly against the US dollar.

New orders fell for the fourth month in a row during August. Though slower than that seen for output, the rate of decline accelerated to a survey record. Data showed that lower exports contributed to the downturn in total new work.

New business from abroad decreased at the sharpest pace in more than two-and-a-half years of data collection. According to respondents, uncertainty towards the exchange rate led to the postponement of orders by some export clients.

Employment joined output and new orders in contraction territory during August. Though only slight, job shedding was recorded for the first time in the survey’s history.

Backlogs of work meanwhile rose for the first time in eight months, albeit only fractionally.

There was a renewed decline in purchasing activity at Nigerian private sector firms, contrasting with a sustained rise in input stocks. Inventory building was linked to the hope of future demand growth, while the lack of buying activity was more reflective of current order books.