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Firms lose confidence in economy, index now down to -66.2%

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Firms lose confidence in economy, index now down to -66.2%
File: Market

•Rebound not expected until Oct

By Babajide Komolafe

At the backdrop of the lull brought about by the Coronavirus (COVID-19) lockdowns, Business Confidence Index fell into the negative territory for the first time to -66.2 index points in May, 2020, indicating loss of confidence among business owners across the country.

A report by the Central Bank of Nigeria, CBN, also indicates that confidence would remain low until next month before picking up gradually into October.

This represents decline of 72.6 index points when compared to the positive 6.6 index points recorded in preceding month of March.

The Central Bank of Nigeria (CBN) disclosed this in its Business Expectations Survey (BES) report for May.

But Vanguard analysis showed that the Confidence Index has been on the downward trend since December.

After rising steadily for 11 months from 221.1 index points in February 2019, to 30.3 index points in December 2019, it fell consistently in the first quarter of this year to  6.6 index points in March, indicating decline of 23.7 index points.

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The CBN report showed that the decline worsened in May with respondent firms expressing negative outlook on the volume of total order, credit access, average capacity utilization and financial conditions (working capital).

The CBN stated: “At -66.2 index points, the overall confidence index (CI) indicated respondents’ pessimism on the overall macro economy in the month of May 2020. Respondents remained pessimistic in their outlook for June with a confidence index of -4.2, however they were optimistic of improvements in July and October 2020 as shown in a greater confidence of the economy, at 16.7 and 49.3 index points, respectively

“The pessimism on the macro economy in the current month was driven by the opinion of respondents from construction (-2.4 points) wholesale/retail trade sectors (-5.6 point), manufacturing (-20.0 points) and Agric/services (-37.7 points). Similarly, the major drivers of the pessimism for next month were construction (-0.3 points), manufacturing (-1.3 points) and agric/services (-2.8 points).

“Further analysis showed that businesses that are export-oriented (-1.2 points), both import- and export-oriented (-9.6 points), import-oriented (-10.0 point) neither import- nor export-oriented (-45.5 points), drove the negative business outlook in May 2020.

“Firms identified insufficient power supply, financial problems, unfavourable economic climate, competition, high interest rate, insufficient demand, unclear economic laws, access to credit, unfavourable political climate and insufficient demand as major factors constraining business activity.

“Respondent firms expect the Naira to depreciate in the current month, next month, next 2 months and appreciate in the next 6 months. Inflation level is expected to rise in the next six months and 12 months, while borrowing rate is expected to rise in the current month, next month, next two months and next six months.”

Vanguard

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