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NIGERIA PMI - June expansion wraps up encouraging Q2

NIGERIA PURCHASING MANAGERS' INDEX

June expansion wraps up encouraging Q2

June Purchasing Managers’ Index (PMI) showed another improvement in the economic environment as both manufacturing (52.9) and non-manufacturing (54.2) sectors expanded at a quicker pace than in the previous month (52.5 & 52.7). Greater stability in the foreign exchange (FX) market following persistent dollar injection by the Central Bank of Nigeria, as well as growing confidence in recovery efforts have propped up the economy from last year’s trough.

Manufacturing PMI and Non-Manufacturing PMI have now registered above 50 for three and two consecutive months respectively. This is the best run since late 2014 and shows the improving sentiment in the Nigerian economy. Moreover, with oil production up (May: 1.98 mbpd vs. 1.75 mbpd average in Q1) and a marked improvement in FX availability in the quarter, we expect Q2’17 GDP numbers to show the end of the current recession, with our projection at 2.1% growth for the quarter.

Recent developments provide cause to be even more optimistic. Passage of the 2017 Budget in early June and the cessation of force majeure on the Forcados Terminal should further bolster the fiscal and FX situations. Furthermore, notable government efforts to improve the transparency and efficiency of the Nigerian business environment, not to mention lower diesel prices in recent months, are positive for business productivity. Despite all this, we highlight lower oil prices, stubborn inflation, and a high interest rate environment as dampeners to this otherwise positive outlook.