05 July 2018 ( Lagos ) :The CBN’s latest Monthly Business Expectations Survey Report for May 2018 shows the business confidence index at 28.9 points, indicating respondents’ overall optimism on the economy and unchanged from April. 

The survey had a sample size of 650 businesses covering services, industry, wholesale/retail trade and construction. A response rate of 91.8% was achieved. The business climate is directly correlated to a country’s macroeconomic environment; this latest survey indicates that there is now a more stable macroeconomic outlook. Respondents saw the main business constraints as inadequate power supplies, the unfavourable economic climate and high interest rates.

The optimism in May was driven by the opinion of respondents from the services (17.6 points) and industrial (9.2 points) sectors while those from the construction and wholesale/trade sectors represented just 1.2 and 0.9 points respectively of the total confidence index.

The trade sector is probably the best barometer for economic activity across the country. Based on the national accounts for Q1 2018, it performed better than the previous quarter in that it contracted at a slower rate. Despite the obvious easing of inflationary pressures, consumer demand remains soft, which helps to explain slow activity within the sector and by extension its low contribution to overall business confidence in May.  

Although access to credit remains a challenge for businesses, respondents were more optimistic with regards to financial conditions. Given that banks do not have the luxury of Fx gains and 20%+ treasury bill yields to boost their earnings this year, the need to extend credit is likely to grow in the near to medium term. However, analysts doubt lending rates will decline from current levels (i.e. above 20%).

The survey pointed towards a positive outlook for employment. The services, industrial and wholesale/retail sectors have the best prospects for job creation at 30.0, 23.6 and 18.2 points respectively. Additionally, the services and construction sectors indicate the greater disposition towards expansion.

As for inflation, the general expectation is for a slowdown in the headline rate for June. This is similar to analyst’s thinking. They expect the rate to slow to 10.8% y/y, from 11.6% in May.

The survey also captured the outlook for business confidence in June. Based on data from respondents, the business confidence index is projected at 65.5 points.

Business confidence is likely to remain positive. However, consumers remain cautious with their spending, resulting in soft demand. If consumption trends remain unfavourable, this could have an adverse effect on overall business confidence.

Reporting for EasyKobo on Thursday, 5 July 2018 in Lagos, Nigeria

Source : Gregory Kronsten, Olubunmi Asaolu, Chinwe Egwim from FBNQuest Capital Limited.