Naija Foodie Update

FOODIE NAIJA UPDATE (NIGERIA’S ECONOMY SLIDES INTO RECESSION IN Q2)

The Central Bank of Nigeria (CBN) on Friday reported that
economic activities declined faster in June, confirming that
the nation’s economy formally entered into recession in the second quarter of the
year.

Economic recession is a period of general decline in economic activities and it is
typically defined as a decline in GDP for wo or more consecutive quarters.

Nigeria’s economy contracted in the first quarter of the year, as it recorded
negative Gross Domestic Product (GDP) during the
quarter.
According to the National Bureau of Statistics the nation’s GDP in Q1 2016
contracted by 0.36%,
the first negative growth in many years.

Indication that the economy suffered contraction in the
second quarter, and hence a slide into recession, emerged
on Friday, as the CBN’s Purchasing Manager Index (PMI) for June revealed that economic activities decline
faster in June.

The decline in June represented decline for six consecutive months. The report revealed that in the
manufacturing sector,
“Production level, new orders, and employment level and raw material inventories declned at a faster rate; while
supplier delivery time
improved at a faster rate”.

It also stated that in the non manufacturing sector,
“Business activity, new orders and employment level
declined at faster rate while raw materials inventories declined at a slower rate”
The CBN stated, “The
Manufacturing PMI dropped to 41.9 index points in June
2016, compared to 45.8 in the preceding month.

This implies that the
manufacturing sector
declined at a faster rate during the review period of the sixteen manufacturing
sub-sectors, fourteen
recorded decline in the review month in the following order: electrical equipment; non metallic mineral products; furniture &
related products; fabricated metal products; chemical &
pharmaceutical products; printing & related support
activities; paper products; food, beverage & tobacco
products; cement; computer & electronic products; plastics & rubber products; textile,
apparel, leather & footwear; petroleum & coal products
and primary metal.

The remaining two sub-sectors however recorded expansion
in the following order: appliances & components and transportation
equipment.

“The composite PMI for the non-manufacturing sector
recorded decline for the sixth consecutive month. The index
dropped to 42.3 points, indicating a faster decline compared to that in May 2016. Of the eighteen non-
manufacturing sub-sectors, fourteen recorded decline in
June 2016. Of the eighteen non-manufacturing sub-
sectors, fourteen recorded decline in June 2016 in the
following order: construction;
professional, scientific, & technical services; management of companies; utilities; accommodation &
food services; real estate, rental &leasing; electricity,
gas, steam and air
conditioning supply;
educational services;
wholesale trade; public administration; information &
communication; finance & insurance; repair, maintenance /washing of motor vehicles; and arts,
entertainment & recreation.

The health care & social assistance sub-sector remained unchanged, while the remaining three
subsectors recorded growth in the order: water supply, sewage & waste management; agriculture; and transportation &
warehousing” N420bn inflow crashes cost of funds
Meanwhile, cost of funds in the interbank money market crashed last week following the inflow of N420 billion which doused the scarcity of funds that rattled the market two weeks ago.

From an average of 40% at the beginning of the week, average cost of funds crashed 4% at the close of business on Friday.
Vanguard
investigation revealed that the market received inflow of N115.03 billion from payment
of matured treasury bills and another N305 billion inflow
from statutory allocation funds.

Consequently, the
liquidity position of the market improved from minus N155.2 billion the previous
week to N267 billion at the close of business on Friday.
The improved liquidity also led to a decline in banks’
borrowing from the CBN, which dropped by 28.71% from N929 billion the previous week to N882.52
billion last week.

This sharply contrast with an increase of
230% increase
recorded the previous week. On the other hand, amount of idle funds banks deposited with CBN fell by 61.31% to N88 billion from N227 billion the
previous.The liquidity improvement in the market may not be sustained this week, as the CBN is expected to mop up N94 billion through sales of treasury bills,
leading to likely increase in
cost of funds.

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