Inflationary pressures intensified in September, further increasing the challenges facing Nigerian businesses as the third quarter drew to a close.
New orders rose for the second consecutive month, but the growth rate remained slow and was not enough to prevent a further contraction in business activity.
Similarly, the job creation rate has slowed to only a trickle, the lowest level in three months.
The key figure derived from the research is the Stanbic IBTC Purchasing Managers Index (PMI). A reading above 50.0 indicates an improvement in business conditions over the previous month, while a reading below 50.0 indicates a deterioration.
Muyiwa Oni, Head of West Africa Equity Research at Stanbic IBTC Bank, commented: “Nigeria’s PMI remained below 50 points for three consecutive months, settling at 49.8 points in September from 49.9 points in August.
“This is the third time in recent months that business conditions are further deteriorating, mainly due to difficult demand conditions in an inflationary environment.
“Nonetheless, the pace of deterioration remained modest as some companies were able to win larger new business during the month. Output in agriculture and manufacturing increased, while output in wholesale and retail trade and services increased. decreased.
“On the other hand, businesses remained reluctant to hold inventory in September, resulting in the largest reduction in purchased inventories since May 2020 for the second consecutive month.
“Inventories fell as production volumes fell and customer demand slowed. Elsewhere, input costs rose to their third sharpest rise on record, while output prices rose to their fastest level in six months. rose.
“Business activity in the third quarter was overwhelmingly lower than in the second quarter. This is because the non-oil sector experienced a All of this will continue to undermine domestic demand and business investment.
“However, as crude oil production increased compared to the same period last year, the oil sector is likely to compensate for the lackluster performance of the non-oil sector, resulting in real GDP growth of 3.10% YoY in the third quarter. % in our estimates.”
The headline PMI remained almost unchanged in September, hitting 49.8, following August’s 49.9. The index is therefore showing a further deterioration in business conditions for the third time in recent months.
Businesses continued to report challenging demand conditions, primarily due to the inflationary environment.
Indeed, inflationary pressures intensified in September, with both input costs and output prices rising at the fastest pace in six months. Purchase prices rose rapidly due to currency depreciation and rising fuel, logistics, material and transportation costs.
Wage inflation slowed to an 18-month low, even as some companies sought to help employees with higher living costs. The cost increases were then passed on to customers, with nearly 49% of respondents increasing their selling prices in September.
New orders increased for the second consecutive month in September, slightly higher than in August, although rapid price increases were a factor limiting customer demand. However, the rate of expansion remained modest.
Business activity continued to decline slightly as tentative improvements in new orders were insufficient to support production expansion. Activity declined for the third month in a row. Output in agriculture and manufacturing increased, but decreased in wholesale and retail trade and services.
Employment rose for the fifth straight month, but remained modest as some companies restricted hiring to cut costs. Companies also maintained a cautious stance on inventory levels, reducing raw material inventories for the second consecutive month, the largest such reduction since May 2020.
Companies are also reportedly keen to clear backlogs where possible, given the cost of storing goods. The decline in inventories was recorded even as purchasing activity increased again for the first time in three months.
Meanwhile, supplier delivery times continued to steadily improve. Business confidence fell in September, hitting its second-lowest level on record, but only slightly higher than the lowest recorded in July. Respondents who were optimistic about the outlook for the year ahead linked this to expectations that business conditions would improve along with business expansion plans.
