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NIGERIA PMI - February readings show deeper economic woe

• According to the Central Bank of Nigeria (CBN) Purchasing Managers’ Index (PMI), economic activity slowed more sharply in February, following a weak contraction in January. Manufacturing PMI registered 44.6 (January: 48.2) whilst Non-Manufacturing PMI registered 44.5 (January: 49.4) as seasonal boost from Christmas and New Year festivities dissolved. Notably, survey respondents reported higher pricing across both areas of the economy, suggesting that inflationary pressures remain strong. Despite this, we expect the higher base of February 2016 (11.4% vs 9.6% in January 2016) to pull February 2017 inflation down to 17.2% (January: 18.7%).

• Manufacturing activity contracted at the fastest pace since October 2016, mainly driven by a slowdown in production levels and steeper drops both in new orders and employment levels. All five indicators used to compute the Manufacturing PMI actually showed contractions in February – the first time this has happened since January 2016. Non-Manufacturing PMI is at a four-month low as February saw a reversal in fortunes for Business Activity (45.4) and Raw materials (44.9) after recording respective expansions of 50.6 and 52.0 in January. Unsurprisingly, imports dipped further as the exchange rate breached the NGN500/USD mark (in the parallel market) for the first time in early February before retreating at the end of the month. There was a silver lining in non-manufacturing though as Agriculture (51.0) and Education Services (52.5) continued expanding.

• February’s falls reinforce our belief that overall recessionary trend has persisted in Q1’17 (Vetiva Q1’17 GDP growth forecast: -0.7%). Moreover, we point to the rising cost of petroleum products at the start of 2017 as an adverse factor on business activity during the period. Despite this, we note that recent CBN intervention to boost liquidity in the foreign exchange market could offer some solace to economic activity in the coming months.