The Purchasing Managers’ Index (PMI) for Nigeria in August has seen a marginal rise, reflecting a slight improvement in business activity despite the ongoing challenges of inflationary pressures.
The PMI, measuring the health of the manufacturing and service sectors, moved up slightly, from 49.2 to 49.9, signalling businesses are growing but at a slower pace.
Stanbic IBTC Purchasing Managers’ Index for August 2024 revealed this while highlighting the stability of businesses.
The increase in the index suggests that companies are managing to maintain operations, though grappling with rising costs, particularly due to higher fuel prices and persistent supply chain disruptions.
Inflationary pressures have been a significant concern for businesses, with the recent fuel price hike worsening the situation. The cost of production has surged, leading to higher prices of goods and services.
This is a strain on consumer purchasing power, reducing demand and forcing businesses to adjust their strategies. Many companies have cut back on production, reduced staff, or passed on the increased costs to consumers.
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What does this mean?
Despite these challenges, the marginal rise in the PMI indicates stability within the Nigerian business sector. Companies have shown adaptability by finding ways to cope with the environment, such as streamlining operations, seeking alternative supply sources, or increasing efficiency to compensate for rising costs.
“Input costs rose rapidly again midway through the third quarter. The rate of purchase cost inflation hit a five-month high amid increases in prices for materials and transportation, with cost pressures exacerbated by currency weakness.”
“Sharply rising material costs and muted demand led firms to scale back purchasing activity, while stocks of inputs decreased for the first time in 17 months. Moreover, the reduction in inventories was one of the sharpest on record, if the COVID-19 pandemic months are excluded. Meanwhile, supplier lead times continued to shorten,” the report states.
The rise is a positive indicator, but it also serves as a reminder of the fragile state of the Nigerian economy.
Trading Economics global macro models and analysts expect Composite PMI in Nigeria to be at 50.30 points by the end of this quarter.
Collaborative efforts between the government, private sector, and financial institutions will be essential to creating a more stable economic environment that fosters long-term growth and sustainability.
