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NIGERIA PMI - Broad economic improvement in May

Nigeria’s economic environment improved in May, according to the Central Bank of Nigeria’s Purchasing Managers’ Index (PMI) with both manufacturing (52.5) and non-manufacturing (52.7) sectors expanding in the past month – a first since December 2015. In explaining this improvement, we point to recent developments – easier access to foreign exchange (FX) as a result of multiple windows created by the CBN, a recuperating oil & gas sector, and slowly increasing confidence in near-term economic prospects. Notably, PMI data shows no indication of a pickup in exports whilst pricing pressures persist in the economy (April Inflation: 17.3%). This highlights the softness of the economic improvement and underpins Nigeria’s underlying macroeconomic challenges.

Unsurprisingly, Nigeria’s economy is showing marginal improvement, no doubt supported by recovering oil parameters and a more liquid FX market. These will likely be aided by increased efforts to improve the ease of doing business in the country spearheaded by the Acting President. Recent executive orders to increase government efficiency and legislative directives to expand credit to MSMEs should support economic recovery. However, persistent inflation pressure (May forecast: 15.8%) remain a worry and will continue to pressure business margins and consumer wallets. Nevertheless, bolstered by recent PMI numbers, we expect an economic rebound (2.1% y/y) in Q2’17.