A monthly business sentiment indicator computed by Standard Chartered shows that the country’s business sentiment in July rose to its highest levels since February on the recent FX liberalisation.
The sentiment rose from 53.7 points in June to 57.5 points in July, this show a seven percent increase and still well above the Q2 average of 53.6.
The indicator, which provides insight into business activity, highlights the changing trends in business and consumer activities in the country.
“After a collapse in sentiment in H1-2016, companies appear cautiously optimistic in the first month of Q3. While the positive impact of the move to greater FX flexibility will likely take time to feed through to real economic activity, business sentiment seems to have been buoyed in July by the move to a managed float for the Nigerian naira in late June,” the report said.
The survey shows that the sentiment rise in July was broad-based; demand, employment, production and productive capacity. 12 of the 15 current conditions improved and 3 of the 5 components of the headline indicator (new orders, production and employment) increased in July, with just order backlogs and supplier delivery times falling.
According to the survey, firms noted higher domestic and foreign demand, production, and input prices. Businesses are also optimistic about the near-term outlook: 10 of 15 future expectation indicators rose.
“While it is likely to take time for any positive impact from the move to greater FX flexibility to feed through to real economic activity, business sentiment seems to have been buoyed in July by the move to a managed float for the Nigerian naira in late June.
“The effect of the naira exchange rate indicator, although still weak at just 16.9, improved 42 percent in July to be its highest since February. Future expectations fell to 34.6, perhaps as businesses remained uncertain about how freely the FX rate would trade, or how much further the NGN might need to depreciate,” the report added.
The MNI business sentiment indicator noted that at the time of the survey, the naira exchange rate was still trading within a range of 281-284 and moves to allow a wider trading range will likely only be reflected in sentiment towards the currency in the August BSI survey.
JOSEPHINE OKOJIE
