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The Nigerian private sector moved back into contraction  territory in July as steep price pressures hit demand and  resulted in renewed reductions in both business activity  and new orders. Input costs and selling prices continued  to rise rapidly, although there were some signs that efforts  to secure sales resulted in a softer pace of output price  inflation. Meanwhile, confidence hit a new record low. The headline figure derived from the survey is the Stanbic IBTC Purchasing  Managers’ Index™ (PMI®). Readings above 50.0 signal an  improvement in business conditions on the previous month,  while readings below 50.0 show a deterioration. The headline PMI posted 49.2 in July, down from 50.1 in  June and below the 50.0 no-change mark for the first time  in eight months. The index signalled a slight deterioration  in business conditions as the second half of the year got  underway. The renewed worsening in the health of the private sector  mainly reflected the first reductions in output and new orders  since November last year. In both cases, rates of decline  were only modest, however. Anecdotal evidence continued to highlight the negative  impact of sharp price increases on customer demand, with  clients often unwilling or unable to commit to new projects.

Three of the four broad sectors covered by the report saw  business activity decrease in July, the exception being  manufacturing where production increased. Selling prices continued to increase sharply at the start of  the third quarter as companies passed higher input costs  through to their customers. This was despite the rate of  inflation easing to the slowest since May 2023 amid reports  from some panellists that they had lowered charges as part  of efforts to secure sales. Muyiwa Oni, Head of Equity Research West Africa at  Stanbic IBTC Bank commented: “The Stanbic IBTC headline PMI declined for the second  consecutive month to 49.2 points in July – its lowest level since  November 2023. Anecdotal evidence continued to highlight the  negative impact of sharp price increases on customer demand,  resulting in renewed reductions in both business activity and  new orders. Notably, output and new orders printed below 50.0  thereby ending a seven-month sequence of expansion and  reinforcing a renewed worsening in the health of the private  sector. Even as output and new orders declined, companies  continued to expand their staffing levels during the month.  Moreover, the rate of job creation picked up to the strongest  in 2024 so far. Meanwhile, overall input prices continued to  rise sharply in July with the rate of inflation quickening for  the third month running and was the fastest since March.  Although output prices continued to rise rapidly during July,  the pace of inflation eased from that seen in June and was  the slowest since May 2023. Where selling prices increased,  panelists linked this to higher input costs. On the other hand,  some companies lowered charges as part of efforts to attract  customers. That said, companies remained confident overall  that output will increase over the next 12 months, reflecting  business expansion plans including efforts to start exporting  and open more branches. On a year-on-year basis, headline  inflation may have peaked in June, with moderation expected  in H2:24 as the year-on-year effects of PMS subsidy removal  (which induced higher fuel prices) and significant currency  depreciation (which accompanied the FX unification) fade.  This, in addition to the commencement of the primary harvest  season in September, is likely to provide some respite for  consumers, thereby likely supporting a slight improvement in  domestic economic activities in H2:24.”

Further increases in purchase prices and staff costs were  registered in July. Purchase price inflation quickened to a four-month high, often due to currency weakness but also  higher raw material costs. Meanwhile, the rise in employee  expenses was broadly in line with that seen in June as  companies continued to help workers with higher living  costs, particularly those related to transportation. The renewed decline in output was accompanied by a  reduction in business confidence, with firms at their least  optimistic since the survey began. That said, business  expansion plans meant that firms still expect output to rise  over the coming year. Companies scaled back purchasing activity, with reduced  demand for inputs and prompt payments helping lead to a  further shortening of suppliers’ delivery times. Meanwhile,  stocks of inputs increased. Employment also continued to rise slightly, with the pace of  job creation quickening to the fastest in 2024 so far. Higher  staffing levels and a drop in new orders meant that backlogs  of work were cleared for the second consecutive month.

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