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NIGERIA PMI - Encouraging signs despite sub-50 readings

• The seasonal aggregate demand boost recorded in December waned at the start of 2017 as Nigeria’s Purchasing Managers’ Index (PMI) retreated into contraction territory. Having recorded its sole above-50 reading for 2016 in December (52.0), Manufacturing PMI fell to 48.2 in January 2017. Non-Manufacturing PMI reading was slightly more positive as it rose from 47.1 to 49.4 in January, indicating a very marginal contraction during the month, and beating Manufacturing PMI for the first time in six months.
• Amidst the slowdown in Manufacturing, Production Level (51.3) was the sole bright spot. Notably, the Cement (55.8), Food, beverage & tobacco products (58.8), and Textile, apparel, leather & footwear (53.0) sub-sectors continued to post respectable month-on-month production growth. Though still below the 50-threshold, the Non-Manufacturing part of the economy is showing some signs of life. January 2017 PMI reading is the highest since December 2015. The recent improvement was primarily driven by expansion in Business Activity (50.6) and Raw Materials Inventories (52.0). This is significant as no Non-Manufacturing sub-Index expanded throughout 2016, offering a sign that 2017 has begun marginally better than 2016 trend.
• The December boost surely weighed on January manufacturing numbers and should be interpreted in context. Meanwhile, there are enough green shoots in the non-manufacturing area to consider whether the economic trajectory has turned slightly. We believe relatively higher oil prices (January Brent average: $56 per barrel vs $45 in 2016) could steer the economy on this path of mini recovery over the next few months.