Nigeria’s manufacturing sector, buoyed by consumption levels that is characteristic of an emerging economy, recorded healthy growth in September according to FBN Capital’s PMI Index.
The manufacturing sector grew 15.3 percent year on year in Q1 2014, and by an average of 16.8 percent over the past eight quarters. In June, the headline PMI stood at 53.8, up from 50.0 in April.
“These stellar growth figures for the sector may cause a few heads to turn, yet they are consistent with the rapid, consumption-led transformation of a frontier market,” said Gregory Kronsten of FBN Capital.
Although the PMI for September 2014 showed a small retreat in headline reading from 56.2 in July to 54.6, the figures are still healthy, according to FBN Capital. “We see the small decline in the headline in August as within the margin for error for a frontier market,” he says.
The PMI, released at the beginning of the calendar month is an indicator of the health of the manufacturing sector. In doing so, it takes into account the changes recorded in output, employment, new orders, suppliers’ delivery times and stocks of purchases of manufacturing companies
A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change. It is expected that as the manufacturing sector expands, the general economy should follow closely behind. Hence, it is considered a good indicator of future GDP levels. GDP estimates often follow readings of the PMI report.
PMI, being an important sentiment index, tracks manufacturing, but the results have implications for the economy as a whole. It is usually the first sign of an impending recession, and the herald of imminent economic expansion.
In developed markets, the PMI is often very closely watched, setting the tone for other major policy decisions.
