Cash shortages may lead to business decline in Q1’23 – PMI

February Purchasing Managers’ Index (PMI) data shows that cash shortages across the Nigerian economy in the month of February may have a severe impact on the private sector midway through the first quarter of the year.

S&P Global said, business activities driven by the private sector slumped for the first time in almost three years as companies reduced output and cut jobs due to cash and fuel shortages in February.

Also, the headline figure derived from the survey of the Stanbic IBTC Bank PMI Indicates that, readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The PMI is a measure of the prevailing direction of economic trends in the manufacturing and service sectors.

Substantial declines were seen in both output and new orders, while firms scaled back their purchasing activity and employment.

Companies were also impacted by shortages of fuel, which added to price pressures and led to supplier delivery delays.

The headline PMI dropped below the 50.0 no-change mark in February, posting 44.7 from 53.5 in January. Business conditions deteriorated markedly, ending a 31-month sequence of expansion. The decline in operating conditions was the sharpest since the survey began in January 2014, excluding the opening wave of the COVID-19 pandemic in the second quarter of 2020.

The most severe impacts of cash shortages were seen with regards to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending. The decline in new orders was the first since June 2020, while the fall in output ended a seven- month sequence of growth. In both cases, the reductions were the most pronounced in the survey’s history, apart from during the opening wave of the COVID-19 pandemic.

With new orders and output falling, companies reduced their input buying and staffing levels accordingly. The declines were the first in 32 and 25 months respectively. The decrease in purchasing reflected not only a drop in customer demand but also difficulties for companies to find the funds to pay for items.

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