PMI Report: Inflation Causes Decline in Private Sector Productivity, Employment

Dike Onwuamaeze

The productivity of the private sector of the Nigerian economy dropped markedly from 54.9 in January to 51.0 in February 2024.

This was revealed by headline figure of the Purchasing Managers’ Index (PMI) of the Stanbic IBTC Bank for the month of February, which said that some companies raised output in response to higher new orders, but severe price pressures acted to limit growth.

The report also said that activity increased in the agriculture and services sectors, but decreased in manufacturing and wholesale & retail sectors.

It attributed the decline to sharp input cost that prevailed in February due to depreciation of the Naira in the foreign exchange market.

The PMI report said, “the rate of overall input cost inflation accelerated sharply in February and was by far the steepest recorded since the survey began in January 2014, comfortably outpacing the previous peak seen in October 2023.

“Around 78 per cent of respondents indicated that their overall cost burdens had risen over the month, with rapid increases seen across all four broad sectors covered.”

In line with the picture for overall input costs, the pace of selling price inflation also hit a new record high in February.

The report stated that the pace of increase accelerated rapidly from the previous month as companies responded to higher input costs. Some 63 per cent of panelists reported a rise in selling prices over the month.

The report said that although business activity continued to increase in February, the rate of expansion slowed sharply from that seen in January and was only slight.

Commenting of the February’s PMI report, Head of Equity Research West Africa at Stanbic IBTC Bank, Mr. Muyiwa Oni, said, “Stanbic IBTC Bank headline PMI slowed to its weakest level since December 2023, moderating remarkably to 51.0 in February from 54.5 in January.

“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. Furthermore, price pressures remain biased to the upside over H1:24 and tight monetary conditions could constrain business investments.”

He added, “Notably, interest-rate sensitive sectors like the manufacturing, construction, real estate, and trade are likely to see moderation in growth levels relative to the prior year.

“Accordingly, the non-oil sector’s growth is on track to moderate in 2024 compared to 2023. We project the Nigerian economy will grow by 2.9 per cent in 2024.”

The report stated that underlying demand reportedly continued to improve, but a number of respondents indicated that sharp price rises had limited the ability of customers to commit to new orders.

The report also gave a hint that might suggest that retrenchment of workers in the private sector might have commenced.

It said: “Nigerian companies lowered their staffing levels for the first time in 10 months during February, albeit at only a slight pace. Anecdotal evidence suggested that employment had been scaled back amid signs of demand weakness. Sector data signaled that the overall reduction in workforce numbers was centred on service providers.”

The PMI report also said that consumers demand for goods and services also declined during the month under review.

According to the report, “February data pointed to a marginal reduction in purchasing activity, ending three months of growth and representing a marked turnaround from the strong expansion posted in January. A combination of softer customer demand and higher costs for inputs was behind the drop in purchasing, according to respondents.”

“In addition, February data pointed to a marginal reduction in purchasing activity, ending three months of growth and representing a marked turnaround from the strong expansion posted in January. A combination of softer customer demand and higher costs for inputs was behind the drop in purchasing, according to respondents,” the report said.