Although the Nigerian private sector remained in growth territory midway through the second quarter of the year, there were signs of a slowdown in the latest survey period as inflationary pressures remained elevated.
Rates of expansion in output and new orders eased in May, while employment dipped for the first time in six months. The headline figure derived from the survey is the Stanbic IBTC Bank Purchasing Managers’ Index (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
The headline PMI registered 52.7 in May, remaining above the 50.0 no change mark for the sixth successive month and signaling a solid strengthening of business conditions over the month. That said, the latest reading was down from 54.2 in April and pointed to the least marked improvement in the health of the private sector since January.
Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank commented: “Business conditions remain in the expansionary territory for the sixth consecutive month in May amid continued improvement in customer demand which is also ensuring businesses launch new products.
However, the pace of improvement in business conditions slowed relative to April, pointing to the least marked improvement since January. While new orders have now increased in each month since November 2024, some firms implied that market conditions are softening.
Hence, the pace of improvement in new orders during May eased to the weakest level in four months. Nonetheless, rising sales and higher customer numbers supported a pronounced output growth across the wholesale & retail and manufacturing sectors.
Given the rising sales and higher customer numbers, companies increased their quantity of purchases for the sixth consecutive month while the rate of inventory accumulation quickened to a three-month high. However, input costs remain high in May, albeit slightly softer than April inflation, with the pace of price increase remaining well above the series average.
As a result, output prices remained sharp as companies passed on the rising purchase costs to customers. Where companies charged lower prices, they indicated that it was due to the need to attract customers. This partly supported the easing of the low in May. the pace of output price inflation to a two-year low in May. Nigeria’s business condition is on course to end Q2:25 on a positive momentum, albeit relatively weaker than witnessed in Q1:25. This is as currency weakness, higher raw material costs, and increased transport prices have been more pronounced than seen in Q1:25.
However, as inflation is expected to remain softer compared to the 2024 average, interest rates are likely to be lower this year, thereby helping to support the medium-term economic growth path. Therefore, we still maintain our expectation that the Nigerian economy is likely to grow by 3.5% y/y in real terms in 2025 relative to 3.4% y/y growth in 2024.”
The slowdown in overall growth was seen across both output and new orders, which each increased at the slowest rates in four months. Where expansions were recorded, panelists linked this to customer demand improvements, higher client numbers and new product launches. Output increased across all four broad sectors covered by the report, with growth sharpest in wholesale & retail and manufacturing. Inflationary pressures remained elevated in May, despite easing slightly from April. Purchase costs rose rapidly amid higher raw material prices, currency weakness and increased transportation costs. Staff costs were also up, but at the slowest pace since March 2023 as a reduction in employment acted to limit the rise in wage bills.
Workforce numbers decreased for the first time in six months as some firms reported that difficulties paying staff had led to resignations. Shortages of staff contributed to a second successive rise in backlogs of work, but respondents indicated that the main factor holding up the completion of projects were delays in payments from customers.
The latest rise in outstanding business was the sharpest since February 2023. While employment decreased, companies continued to expand their purchasing activity at a rapid pace. Respondents mentioned the need to satisfy both current and future client requirements.
In turn, stocks of purchases also rose, and at the fastest pace in three months. Competition among suppliers and prompt payments resulted in a further shortening of suppliers’ delivery times, albeit one that was the least marked in 2025 so far. Business confidence waned for the fourth consecutive month and was among the lowest on record.
That said, companies remained optimistic that output will expand over the coming year, with positive sentiment linked to business expansion plans, marketing and restocking.
