President Bola Ahmed Tinubu alighting from a vehicle
Judging by the Stanbic IBTC’s Nigerian Composite Purchasing Managers’ Index (PMI) report, business activities improved in Q1-24 relative to the previous quarter amid high inflationary pressures and tight monetary conditions. The headline PMI averaged 52.17 points in Q1-24 compared to the average of 49.93 points in Q4-23. Nevertheless, we highlight that business activities showed signs of weakness as the composite PMI fell to 51.10 points in April from 54.50 points in January.
This suggests the impact of heightened inflationary pressures on business activities and consumer demand. Looking ahead, we expect the Composite PMI to remain above the 50-point threshold partly due to reduced FX constraints and improved consumer demand supported by a potential increase in wages.
On the other hand, the oil sector relatively underperformed as domestic oil production fell by 13.1% to 1.45mb/d in April from 1.64mb/d in January. Whilst structural factors such as oil theft, pipeline vandalism, and infrastructure decay remain, we think that the delay in concluding the various divestment deals between International Oil Companies (IOCs) and their Indigenous counterparts may be weighing on domestic oil production. Oil production (including condensates) averaged 1.54mb/d in Q1-24 (Q4-23: 1.53mb/d | Q1-23: 1.51mb/d), potentially leading to a y/y estimated growth rate of c. 2.0% in Q1-24. Consequently, we revise our GDP estimate upwards to reflect the improvement in the non-oil sector amid a lower-than-expected performance in the oil sector. We estimate a GDP growth rate of 2.87% (Previous: 2.30%) in Q1-24 (Q4-23: 3.47% | Q1-23: 2.31%). We expect the MPC to acknowledge the lull in economic activity, given the impact of sustained price pressure on the non-oil sector as well as the insecurity and IOC divestments in the oil sector. However, we expect the Committee to remain optimistic that GDP growth will remain positive despite the economic headwinds, providing headroom to tighten monetary policy further.
