‘PMI upward trend, sign of higher economic growth’

As for most investment banking and assets management firm, Cowry Assets Management Limited has said that the upward trend in composite Purchasing Managers Index (PMIs) over the last three months in the fourth quarter of 2019 is suggestive of possible higher economic growth rate in 2020. Particularly, sustained growth in new orders and production level further underscores that growth was volume driven amid reduced selling prices, it stated in a note to clients.

Nevertheless, “we feel economic growth in the first quarter of 2020 would hang in the balance of increasing taxes and the speed of implementation of capital projects which is expected to boost new demand despite the 50 per cent hike in Value Added Tax (VAT).

Recently released Purchasing Managers’ Index (PMI) survey report by Central Bank of Nigeria (CBN) showed faster expansions in both manufacturing and non-manufacturing businesses in December 2019, as production level and new orders indices further grew faster.

According to the survey, the manufacturing composite PMI expanded faster to 60.8 index points in December (from 59.3 in November), the sixteenth consecutive expansion. Specifically, the growth in manufacturing composite PMI was due to faster expansion in production level index to 61.8 in December 2019 (from 60.1 in November 2019) which was propelled by expansion in new orders – the index increased to 61.5 in December 2019 (from 59.4 in November 2019).

Producers stimulated demand as their selling prices grew slower (output price index declined to 51.9 from 53.1) even as costs of production expanded slower, but marginally shrinking producers’ margins, (input price index fell to 59.2 from 59.3).

According to the report, suppliers of raw materials improved on delivery time of inputs despite increased production level – supplier delivery time index rose to 60.5 in December (from 58.7 in November).

Amid improvement at the suppliers’ end, raw materials/work-in-progress expanded faster, to 62.4 from 60.6 as the producers increased their quantity of raw materials purchased – quantity of purchases index expanded faster, to 57.0 from 55.8.

Given the slower increase in selling prices, “we saw stock of finished goods expand slowly – its index expanded slower to 52.8 in December from 53.1 in November 2019 amid improved consume demand,” the firm noted.

It further stated that the number of new hires recorded by manufacturers increased in tandem with the higher production volume as the index for employment rose to 58.0 points in December 2019 (compared to 57.7 in November 2019).

According to the CBN survey, of the fourteen manufacturing sub-sectors surveyed, thirteen sub-sectors (or 92.86 per cent) recorded faster expansions, sustaining the same performance it printed in November 2019.

Particularly, manufacturers of ‘Petroleum and coal products’, ‘Plastics and rubber products’ and ‘Food, beverage and tobacco products’ registered the sharpest expansion in activities of 75.8 (from 69.4), 66.3(from 62.4) and 63.7 (from 61.1), respectively.

Meanwhile, the non-manufacturing sector recorded sustained expansion as its composite PMI rose to 62.1 index points in December 2019 (from 60.1 index points in November 2019), the fifteenth consecutive expansion.

This was driven by faster expansion in business activity and incoming business to 62.6 (from 60.0) and 61.9 (from 60.7).