Nigerian economy set to shrink as business activity tumbles ─Report

* Three PMIs indicate business conditions worsening in May

* Economy can escape recession, says CBN Governor Emefiele

Isola Moses | ConsumerConnect

The Nigerian economy is likely to contract in the second quarter of 2020, according to three gauges of business activity that highlight the difficulties the Central Bank of Nigeria (CBN) reportedly faces in trying to stave off a recession in the African largest economy.

Bloomberg report indicates that Stanbic IBTC Bank and IHS Markit’s purchasing managers index rose slightly to 40.7 in May 2020 from 37.1 the previous month, suggesting economic conditions are worsening even as the government relaxes a lockdown in key cities to curb the spread of the Coronavirus.

Gbolahan Taiwo, an economist with Stanbic, in a statement Wednesday, June 3 said: “We expect the PMI reading will continue to pick up over the coming months as economic activities continue to rise.

“However, it will mostly remain below the 50 mark, which signals a contraction.”

The lender expects the economy to contract 3.3% this year on lower oil prices and the fallout from the Coronavirus pandemic.

It was further learnt that Mr. Godwin Emefiele, Governor of CBN, recently surprised markets with a 100-basis point interest-rate cut, contending that looser monetary policy coupled with fiscal stimulus could rescue the economy from recession.

According to him, the drop in output in Nigeria as Africa’s top oil producer could be less than the 3.4% projected by the International Monetary Fund (IMF), the report noted.

The CBN’s own manufacturing PMI fell to 42.4 in May which indicated a contraction in the sector for the first time after positive readings over 36 consecutive months.

The manufacturing PMI compiled by Lagos-based FBNQuest Capital fell to 43.3 in May from 45.8, with all sub-indices falling as well.

According to Bloomberg’s Africa Economist Boingotlo Gasealahwe, “the May PMI continues to suggest a deep contraction in growth. Even though easing lockdowns have slowed the rate of decline, the economy remains firmly in contractionary territory for now.

“With business confidence still weak, this is likely to persist, resulting in an overall contraction for the year. This is at odds with the CBN’s expectation.

“Although they have announced a number of stimulus measures, exchange rate restrictions continue to weigh on growth. They also continue to stoke inflation.”