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NIGERIA PMI - PMI shows strong start to 2018

PMI shows strong start to 2018                                                                 

Supporting our positive outlook for 2018, Purchasing Managers’ Index (PMI) readings for January point to a strong start to the year. The manufacturing sector (57.3) expanded at the quickest pace on record while the non-manufacturing sector (58.5) expanded at the quickest pace since 2014 (both excluding December which is a seasonally stronger month). The strengthened economic climate was likely driven by healthy foreign exchange (FX) liquidity and stability, as well as improving aggregate demand.                                                                            

Despite January readings showing no clear ill-effect of the petroleum product debacle, we consider this a pressure point for economic activity. We are aware of the ongoing Senate committee investigation into the matter but do not anticipate any official amendments to the petroleum pricing template in a pre-election year. As a result, we anticipate further volatility in product supply and prices across the country and envisage this as a challenge in 2018.                                                                             

Overall, we anticipate a softer pricing environment in 2018, with high base effects from Q1’17 inflation driving speedy deceleration in inflation this quarter – January forecast: 15.1% y/y and February forecast: 14.7%. We expect this to support producer costs and consumer wallets. Furthermore, persistently strong oil prices should continue to buoy FX liquidity and budget implementation, both of which are key for sustaining Nigeria’s economic recovery.