The headline PMI dipped to 52.7 points in May, a decrease from 54.2 in April. While the index remains above the 50.0 "no-change" threshold, indicating continued, albeit slower, expansion, the figures paint a picture of a private sector facing increasing headwinds. This moderation aligns with findings from the NESG-Stanbic IBTC Business Confidence Monitor (BCM), which earlier this week highlighted a slowdown in growth momentum despite a generally positive business environment, attributing it to operational inefficiencies, escalating costs, and fragile macroeconomic conditions.
A significant concern flagged by the S&P Global report, mirroring the NESG-Stanbic BCM, is a growing sense of caution among businesses. This apprehension is evident in the fact that employment levels fell for the first time in six months. Firms cited difficulties in meeting wage obligations and an increase in voluntary resignations as contributing factors to this modest reduction in headcount.
Despite a smaller workforce, the report indicates that labor shortages are pushing up work backlogs, with the increase in outstanding business being the sharpest since February 2023. This suggests that businesses are struggling to keep pace with demand, even as new orders and output growth eased to their slowest rates in four months. Furthermore, delayed customer payments are reportedly exacerbating project completion challenges. While staff costs increased, the report noted that the pace of this increase was the slowest in over two years, indicating that firms are actively trimming their workforce to contain rising expenses.
Despite these challenges, business activity remained broadly resilient. Sectors such as wholesale, retail, and manufacturing continued to record expansion. Purchasing activity saw its sixth consecutive month of growth, and inventory levels increased at the fastest rate since February, reflecting businesses' expectations of improved future demand.
However, input cost pressures remained a significant hurdle. Higher raw material prices, the persistent weakness of the Nigerian currency, and elevated transport costs continued to drive up expenses for firms. Interestingly, while output charges remained high, the pace of inflation for these charges eased to a two-year low, suggesting that some businesses are absorbing a portion of these rising costs to remain competitive. Muyiwa Oni, Head of Equity Research, West Africa at Stanbic IBTC Bank, commented on this dynamic, stating, "Purchase costs rose rapidly, yet the pace of output price inflation softened, suggesting some firms are absorbing costs to stay competitive."
Perhaps one of the most striking findings from the May PMI report is the continued erosion of business confidence, which has now declined for the fourth consecutive month, reaching one of its lowest levels on record. Nevertheless, a majority of businesses maintain a positive 12-month outlook, buoyed by planned expansion strategies, marketing campaigns, and inventory restocking initiatives. Oni remains optimistic, asserting, "While market conditions are showing signs of strain, the outlook for Nigerian business activity remains anchored in recovery momentum and structural reforms."
Looking ahead, Stanbic IBTC projects that Nigeria’s economy will grow by 3.5% year-on-year in 2025, a slight increase from the 3.4% expansion in 2024. This growth is expected to be supported by anticipated interest rate cuts and a gradual easing of inflationary pressures. "Nigeria’s business environment is on course to end the second quarter on a positive note, although the momentum has softened compared to Q1," Oni concluded.
The Stanbic IBTC Nigeria PMI is a vital indicator, drawing data from approximately 400 private sector companies across key segments of the Nigerian economy, including agriculture, manufacturing, construction, wholesale, retail, and services, offering a comprehensive snapshot of the nation's economic health.