According to the latest Purchasing Managers’ Index (PMI) report released by Stanbic IBTC Bank, business activity in Nigeria has contracted for the first time in seven months. The headline index dropped from 51.1 in September to 49.1 in October, signaling a deterioration in business conditions. This decline is attributed to factors like rising input prices, currency weakness, and the lingering effects of the fuel subsidy removal.
Key Findings:
- PMI Below 50.0 Mark:
- A PMI reading below 50.0 indicates a decline in business activity. In October, Nigeria’s PMI dropped to 49.1, down from 51.1 in September, signifying a slight worsening of operating conditions.
- Challenges Faced by Firms:
- The report highlights that the sharpest rise in overall input prices in almost a decade was a central challenge for firms in October. This increase in purchase costs was attributed to currency weakness and the ongoing impact of the fuel subsidy removal.
- Composite Index Components:
- The PMI index is derived from a survey of 400 companies across various sectors. It comprises five individual indexes with varying weights, including new orders, output, employment, suppliers’ delivery times, and stock of items purchased.
- Inflationary Environment’s Impact:
- The inflationary environment has led to depressed consumer demand in October, temporarily halting the steady pace of new business expansion that had been observed for six consecutive months.
- Rising Purchase Prices:
- Respondents reported an increase in purchase prices, primarily attributed to exchange rate weakness and higher fuel costs. This resulted in inflation rates reaching a new peak in the survey’s history.
Conclusion: The contraction in business activity in Nigeria, as indicated by the PMI report, underscores the economic challenges facing the country. Factors like inflation, rising input costs, and currency fluctuations are contributing to this decline. As businesses navigate this environment, it becomes crucial to monitor economic indicators and adapt strategies to mitigate the impact of these challenges on operations and growth prospects.
