Nigeria’s private sector entered 2026 on a cautious note as business activity slowed for the first time in over a year, reflecting weak demand, rising cost pressures, and a post-festive spending lull across key sectors of the economy.
The latest Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) shows that the headline index dropped to 49.7 in January, down sharply from 53.5 in December, falling below the critical 50-point threshold that separates economic expansion from contraction.
The reading signals a mild deterioration in overall business conditions after 13 consecutive months of growth.
Although the downturn was modest, analysts say it raises important questions about the durability of Nigeria’s economic recovery amid ongoing reforms, high living costs, and fragile consumer confidence.
Nigeria PMI slips below 50 as orders stall across key sectors
The January PMI decline was primarily driven by a stagnation in new business orders, ending a 14-month growth streak that had supported output expansion through much of 2025.
Survey respondents reported that while some firms saw a slight uptick in customer numbers, these gains were largely offset by subdued demand elsewhere. The result was near-zero growth in new orders, forcing many companies to scale back production plans.
As a consequence, output growth slowed significantly, rising only marginally compared with the strong expansion recorded in December.
Economists note that the PMI figure of 49.7 suggests that activity has not collapsed but is instead hovering around stability, underscoring the fragile balance between recovery momentum and persistent economic headwinds.
Wholesale and retail trade drag overall performance
A closer look at sectoral performance reveals that the slowdown was not uniform across the economy.
The wholesale and retail trade sector emerged as the weakest link, recording contraction and pulling the overall PMI below the neutral mark.
Analysts attribute this to post-festive spending fatigue, reduced household purchasing power, and lingering inflationary pressures.
In contrast, agriculture, manufacturing, and services continued to post expansionary readings, helping to cushion the overall decline and keep the PMI close to the 50-point threshold.
This mixed performance suggests that while consumer-facing sectors are struggling, productive segments of the economy are showing resilience, particularly those benefiting from policy support, infrastructure investments, and supply-chain adjustments.
Rising costs squeeze businesses despite weaker demand
Even as demand softened, Nigerian businesses continued to face mounting cost pressures in January.
The PMI survey showed that purchase prices and staff costs rose at a faster pace, reflecting higher input prices, logistics costs, and wage adjustments.
Many firms said salaries were increased to help employees cope with rising living expenses, particularly food and transportation costs.
To protect margins, companies passed a portion of these higher costs on to customers, leading to a pickup in output price inflation, which reached a four-month high during the month.
Despite this acceleration, analysts noted that inflationary pressures remained relatively moderate compared with peaks recorded in the aftermath of the COVID-19 pandemic and the initial phase of Nigeria’s economic reforms.
Employment growth offers a rare bright spot
One of the more positive signals from the January PMI survey was the continued increase in employment levels.
Staffing numbers rose at a pace similar to that recorded at the end of 2025, suggesting that businesses remain cautiously optimistic about medium-term demand conditions.
Economists say the sustained hiring trend indicates that firms view the January slowdown as temporary rather than structural, and are positioning themselves for improved activity later in the year.
This optimism was echoed in business confidence indicators, which, although slightly weaker than in December, remained firmly in positive territory.
Business confidence holds despite early-year slowdown
Despite the softer PMI reading, Nigerian firms expressed confidence that output would increase over the next 12 months.
Survey respondents cited planned capacity expansions, higher inventory holdings, and expectations of stronger new orders as reasons for their optimism.
Many businesses believe that demand will rebound as the year progresses and economic conditions stabilise.
Industry analysts argue that such confidence reflects expectations of improved macroeconomic stability, including easing inflation, exchange rate normalisation, and a more predictable policy environment.
Analysts warn January PMI dip may signal deeper issues
Commenting on the data, Muyiwa Oni, Head of Equity Research for West Africa at Stanbic IBTC Bank, noted that while January PMI readings are typically weaker than December figures, the sub-50 outcome is historically significant.
“This is the first time since the PMI survey began in 2014 that the January reading has fallen below the 50-point psychological threshold,” Oni said.
While part of the weakness can be attributed to seasonal factors following festive spending, Oni warned that the depth of the decline could point to underlying structural challenges, particularly in consumer-driven sectors.
He added that wholesale and retail trade recorded especially weak activity, while agriculture, manufacturing, and services remained expansionary.
Economic growth outlook remains cautiously positive
Despite the negative PMI surprise, Stanbic IBTC Bank maintained its 4.1 per cent GDP growth forecast for 2026, citing expectations of stronger demand in subsequent months.
Analysts point to increased government spending on infrastructure, livestock development, and trade facilitation, as well as renewed investment interest in oil, gas, and manufacturing.
The continued expansion of the Dangote Refin refinery is also expected to generate forward linkages across multiple sectors, supporting industrial output and job creation.
Additionally, prospects of lower interest rates, improved exchange rate stability, and easing inflation could boost private consumption and business investment over the course of the year.
What the PMI reading means for Nigerians
For households and investors, the January PMI result underscores the fragility of Nigeria’s economic recovery.
While the economy is not in contraction, the loss of momentum highlights the importance of sustaining reforms, stabilising prices, and restoring consumer confidence to drive growth.
Economists say the coming months will be critical in determining whether the January slowdown was a temporary pause—or an early warning sign of broader economic stress.
