GDP-PMI Nexus: Nigeria in Focus

Abstract

This study seeks to contribute to extant literature on the relationship between the manufacturing and non-manufacturing purchasing manager’s index (PMI) and the real gross domestic product (GDP) in Nigeria. The study was carried out at Statistics Department, Central Bank of Nigeria, Abuja, Nigeria between 2010:Q1 – 2019:Q3 (for seasonally adjusted quarterly real gross domestic product (GDP)) and 2014:M7 – 2019:M9 (for monthly PMI). Pearson correlation test and plots are the adopted methods. The uniqueness of this study is the utilization of growth rates for both variables as well as employing a disaggregated approach in other to drill down to discover the true drivers of the relationship between the two variables. Results shows that CBN PMI is the most reliable of the three PMI indices computed for Nigeria. In addition, input price, output prices and quantity purchased, are the true determinants (from the manufacturing sector) of the direction of real GDP growth. Output price has a strong negative relationship with real GDP (-83%, contemporaneous), while input price too has a strong negative relationship with real GDP (-88% contemporaneous and -90% at lag 1) and quantity of purchases has a strong positive relationship with real GDP. From the non-manufacturing sector, average input price has a strong negative relationship with real GDP (-84%, with 2 periods lag), new export orders have a strong positive relationship with real GDP growth (77% with 3 periods lag) and imports also has a strong positive relationship with real GDP growth (85% with 1 period lag). Because prices have such a significant effect on GDP growth, it is recommended that both the monetary and fiscal authorities work together to curb inflation growth which has been trending upwards.