Analysts Advocate Sustainability As Naira, Price Stability Spur Growth

Nigeria’s private sector recorded a sixth consecutive month of expansion in May 2025, supported by a stabilising naira and declining inflation as analysts warned that underlying vulnerabilities, particularly rising input costs and constrained pricing power, could threaten the sustainability of the recovery.

According to data released by the Central Bank of Nigeria (CBN), the composite Purchasing Managers’ Index (PMI) stood at 52.5 index points in May, remaining above the 50-point threshold that signals expansion. While this reflected continued growth in output, new orders, and employment across key sectors, it also marked a slight moderation from April’s 52.2 points.

Sectoral breakdown showed a mixed performance. Agriculture led with a PMI reading of 53.4, driven by higher new orders at 54.7 and general farming activity at 53.9. However, the sector also faced steep cost burdens, with cost absorption hitting a high of 10.5 index points. Fishing and fish farming recorded contractions, pointing to sector-specific logistical and pricing constraints.

The industrial sector, though still in expansion territory with a PMI of 51.6, posted uneven results. While petroleum and coal products drove growth, eight of the 17 industrial subsectors, including paper products, contracted. Output rose to 53.1, but new orders and employment lagged behind at 51.4 and 50.1 respectively.

The services sector maintained modest momentum with a PMI of 51.7. Educational services outperformed, while transportation and warehousing contracted sharply. Output and new orders remained steady at 51.5 and 52.5 points respectively. However, analysts noted that the sector remains highly sensitive to consumer spending patterns and fuel prices.

Commenting on the latest PMI, analysts at Cordros Research noted that, the expansion in private sector activity is expected to continue with the improvement in macroeconomic fundamentals such as naira stability and slowing inflation.

However they warned that ‘tight financial conditions remain a significant headwind and could limit broader economic performance in the near term.’

Analysts at Cowry Assets Management pointed out mounting cost pressures, which they warn is not sustainable. Across all three sectors, input prices consistently outpaced output prices, squeezing profit margins. Many businesses are reportedly absorbing rising costs instead of passing them onto consumers.

“The May 2025 PMI data sends a mixed signal. On the one hand, rising output, stronger demand, and increased purchasing activity all point to a recovery taking shape. On the other hand, persistent inflation, cost pass-through limitations, wage pressure, and faltering sentiment raise red flags about the durability of that recovery.

“The gap between input and output prices is no longer a mild imbalance, it is becoming a structural threat to profit margins and, eventually, to employment and investment. With a composite PMI at 52.5, Nigeria’s economy is indeed growing. But if margin pressures are not addressed through fiscal support, forex stability, and productivity reforms, growth may come at the cost of corporate resilience and macroeconomic stability.” Cowry analysts warned.

Despite the positive PMI readings, CBN data shows a slight deceleration in activity across all sectors compared to April. Agriculture dropped from 53.8 to 53.4, Industry eased from 51.8 to 51.6, and Services slipped from 51.8 to 51.7. The moderation reflects cautious optimism among businesses amid macroeconomic adjustments.