Consequent to the coronavirus outbreak spreading like wildfire around the world, doubled down by the breaking news on Friday that Nigeria has received her primary case from in an Italian, the stock market reacted with a sharp bearish turn. Indications are that Nigeria may be out for a long drawn battle, with the propensity to rub on the real sector, considering the hideous features of the disease.
Since the announcement of a Covid-19 entering Nigeria, the stock market plunged, taking a hit of N308 billion in just six hours.
The virus, which originated in the market city of Wuhan in China and has entered all continents of the world except Antarctica, slipped into Lagos, Nigeria after midnight on Friday, February 27, carried by an Italian whose country has recorded 531 cases of persons who have contracted the virus.
In China where the outbreak started, more than 85,055 people have been infected, leading to the death of 2,835 as of Saturday morning. In the United States, there were at least 67 confirmed cases, the majority of which were repatriated passengers from the Diamond Princess Cruise ship. Worldwide, the virus has killed at least 2,922, forcing governments to take action that inadvertently deter economic activities.
According to the World Economic Forum (WEF), which quoted a Reuter’s poll, as a result of the virus, China’s economic growth is expected to slow to 4.5% in the first quarter of 2020 – the slowest pace since the financial crisis. Reports say factory shutdowns are slowing the flow of products and parts from China, affecting companies around the world, including Apple and Nissan, leaving the spectre of a global slowdown.
Besides this foreboding prospect, is the plunge in global stock markets, which according to S&P Dow Jones Indices, has lost $6 billion in the last six days to Friday with U.S stocks alone losing $4 trillion. The situation is so bad that Stock markets around the world are plunging into correction territory. The Dow Jones Industrial Average, S&P 500 and Nasdaq are all in correction territory, down at least 10% from their most recent high.
Nigeria’s consumer confidence was not impacted much by the coronavirus for the month of February, though. Business activities in Nigeria slowed down in February and optimism of business operators further dwindled as the Purchasing Managers Index and Business Expectation reports for February released by the Central Bank of Nigeria (CBN) have shown.
The business expectation survey revealed a marginally dwindling optimism in the economy as the overall confidence index (CI) dropped to 26.6 index points in February as against 28.3 points in January. Also, the business outlook index for March 2020 dropped when compared with 61.4 index points for February.
The optimism on the macroeconomy rose from the construction sector, which had 1.0 points last month compared to 0.5 points in January, while it dwindled for services and industry which had 14.7 and 8.3 points compared to 16.1 and 9.0 points in January. The level of optimism remained the same for the wholesale/retail sector at 2.6 points.
Meanwhile, PMI, which measures business activities had seen a slowdown in expansion in January following December festive activities but had not picked up in February. Compared to 59.2 index points recorded in January, the Manufacturing PMI in the month of February stood at 58.3 index points.
Expansion had been recorded in 12 of the 14 subsectors in the manufacturing sector. According to the survey report, transportation equipment, petroleum & coal products, nonmetallic mineral products, paper products, cement, textile, apparel, leather & footwear, furniture & related products, food, beverage & tobacco products, plastics & rubber products; fabricated metal products; chemical & pharmaceutical products; plastic and rubber products and electrical equipment had recorded growth above the 50 percent threshold while the primary metal and printing & related support activities subsectors recorded declines.
At 58.9 points, the production level index for the manufacturing sector grew for the 36th consecutive month in February 2020 but at a slower rate compared to 59.6 points recorded in January. Out of the 14, 10 manufacturing subsectors recorded an increased production level; three remained unchanged while one recorded a decline.
The new orders index grew at 59.1 points last month but at a slower rate when compared to its level of 59.7 points in January 2020. Eleven subsectors reported growth, while the remaining three recorded declines in the review month.
The employment level index for February 2020 stood at 56.4 points, a slower growth rate compared to 57.3 points recorded in January as nine of the 14 subsectors reported increased employment level.
Three subsectors remain unchanged, while the electrical equipment and printing & related support services subsector recorded lower employment level in the review month
Likewise, the composite PMI for the non-manufacturing sector stood at 58.6 points in February 2020, recording a slower growth compared to 59.6 points recorded in January. Business activity index grew for the 35th consecutive month at 59.3 points indicating expansion but at a slower rate compared to 59.8 points recorded in January.
The employment level Index for the non-manufacturing sector stood at 57.8 points, indicating slower growth in employment compared to 58.9 points recorded in January.
Of the 17 surveyed subsectors, 14 recorded growth in employment level in the review period, the Management of companies subsector recorded no change while two subsectors recorded declines in the employment level.
The Purchasing Managers Index (PMI), like the stock market, is a leading indicator of the direction of the economy. When they travel north, the economy is likely to grow, conversely, when they move south, the economy experiences a dip.
Moreover, there is a danger that confidence may worsen. This is coupled with the fact that the Coronavirus is moving governments around the world to take preventive action to ward off the spread of the disease.
The United States experienced its worst week for the stock market since 2008, due to fears of the coronavirus spreading. At a White House news conference on Saturday, President Donald Trump acknowledged the first death recorded in the United States, in Washington State. Vice President Mike Pence said the administration was issuing its highest-level warning, known as a “do not travel” warning, to areas of Italy and South Korea most affected by the virus. This is an indicator of a trend that is most likely to be extended to countries that are hard hit and unable to curtail the spread of the virus.
In Nigeria, Ogun and Lagos States are two major industrial and manufacturing hubs – prime destinations for investors, international investment and business summits and expos, as well as the location of the nation’s main seaport. It is also a growing tech hub and the base of most portfolio investments, not to mention housing the headquarters of the Nigerian Stock Exchange and over 90 percent of the country’s commercial banks.
A do not travel warning if issued against Lagos and Ogun states will hurt Nigeria’s economy. Lagos alone is home to about 22 million people, around 10 percent of Nigeria’s population and contributes nearly a third of the country’s GDP.
