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By Chinwendu Obienyi
Despite recent improvements, analysts suggest that tight financial conditions are likely to pose downside risks to economic activities in Nigeria.
This came after the country’s Purchasing Managers’ Index (PMI) showed signs of recovery, with the Central Bank of Nigeria (CBN) reporting that PMI rose by 51.0 index points.
This marks a recovery after two consecutive months of contraction, indicating a positive shift in the country’s economic landscape.
Reacting to the development, analysts noted that whilst recent PMI data shows some positive trends, the persistence of tight financial conditions and inflationary pressures suggests that downside risks to economic activities in Nigeria remain significant.
“Looking ahead, we expect a further uptick in private sector activities supported by improving macroeconomic conditions, including naira stability and moderating inflationary pressures. Nonetheless, tight financial conditions are likely to pose a downside risk to overall activities in the near term”, analysts at Cordros Research said.
According to the apex bank, the PMI was driven by broad-based increases across the industry, agriculture and service sectors. Specifically, the agriculture sector PMI (52.7 points vs November: 51.0 points) expanded for the 6th month, supported by the ongoing late harvest season, which bolstered farming activities.
Furthermore, the Industrial sector (50.0 points vs November: 49.3 points) expanded for the first time since January 2024, albeit to a stationary level, primarily reflecting stronger activities in the primary metal, fabricated metal products and food, beverage & tobacco products subsectors.
On the other hand, the Services sector PMI (52.0 points vs November: 47.4 points) moved back to the expansionary level supported by the Motion pictures & Music production, Wholesale trade and Finance & Insurance sub-sectors.
The report also stated that strong inflationary pressures persist, driven by currency weakness and rising fuel and transportation costs. “These factors have led to higher purchase prices and increased output prices, potentially dampening consumer demand”, the report said.
Despite some improvement in hiring, certain firms reported having to let staff go due to difficulties in paying wages, suggesting ongoing financial strain in some sectors of the economy.
The report also revealed that while business sentiment has improved from recent lows, it remains relatively weak compared to historical levels and this could impact future investment and expansion plans.
