BUSINESS activity in Nigeria began the third quarter with growth momentum as inflation continued to slow, leading private sector businesses to perform better in July.
This is according to Stanbic IBTC Bank in its latest Purchasing Managers’ Index (PMI) report released on Friday, August 1.
The rise in business activity after a consecutive drop in the past three months indicated that the headline PMI rose to a three-month high of 54.0 in July, up from 51.6 in June.
The reading signalled a solid monthly improvement in the health of the private sector, extending the current sequence of expansion to eight months.
Notably, a PMI above 50.0 points signals growth in business activity, while a PMI below 50.0 points signals contraction, an unhealthy condition for businesses.
The reading is used to measure the health and direction of the manufacturing and services sectors’ businesses.
It’s a key economic indicator that provides insights into business activity, including new orders, production (output), inventory (raw materials and finished goods), and employment.
According to Stanbic IBTC, firms were helped to some degree in their efforts to secure new business by a further softening of inflationary pressures.
Output prices increased at the slowest pace in more than two years.
“Rates of expansion in output and new orders accelerated, leading to a sharp rise in purchasing activity and the fastest increase in employment since October 2023,” the bank stated.
It noted that there was improved customer demand, in some cases due to softening inflationary pressures.
The ICIR reported that Nigeria’s headline inflation slowed to 22.22 per cent in June, from 22.97 per cent in May, marking the third consecutive month of decline.
But as the easing of headline inflation helped business activity to pick up in July, Stanbic IBTC indicated that the naira weakness caused firms’ costs of purchases to rise sharply.
“The pace of purchase price inflation eased for the third consecutive month in July and was the weakest since April 2020.
“Costs for purchases continued to rise sharply, however, linked to currency weakness and higher raw material prices,” Stanbic IBTC stated.
The report noted that companies remained optimistic that output will rise over the coming year, linking it to plans to raise capital for business expansions and advertising.
The ICIR had, in a report in March, highlighted the risks private-sector businesses will face in 2025.
The report indicated that, among other macroeconomic headwinds, inflationary pressures, high exchange rates, and borrowing costs would influence business performance and investment decisions.