Nigeria’s private sector recorded its first contraction in over a year at the start of 2026, as weak demand dragged new orders to a standstill and slowed business activity, according to the latest Stanbic IBTC Bank Purchasing Managers’ Index (PMI).

The headline PMI fell sharply to 49.7 in January from 53.5 in December, slipping below the 50-point threshold that separates expansion from contraction. Although the reading signals broadly stable conditions, it marks the first time since the survey began in 2014 that January activity dipped into negative territory, underscoring a muted start to the year for businesses.

The report showed that new orders stagnated after a 14-month growth streak, with firms citing weak customer demand following the festive spending surge in December. Output rose only marginally as a result, while purchasing activity and stocks of inputs increased at much slower rates. Sector breakdown indicated that the weakness was concentrated in wholesale and retail, which contracted sharply, while agriculture, manufacturing and services sectors continued to record growth.

Despite the slowdown, companies continued to hire, extending an eight-month sequence of job creation. Employment rose at a pace similar to December, albeit slightly. Stable workloads and higher staffing levels allowed firms to reduce backlogs of work for the first time in three months, and at the fastest rate since March 2025.

Cost pressures, however, intensified. Purchase prices rose sharply amid higher raw material costs, pushing input price inflation to a three-month high. Staff costs also climbed at the fastest pace since July last year, as companies raised wages to cushion workers against rising living expenses.

Businesses passed part of these increases to customers, resulting in output price inflation accelerating to a four-month high, though the pace remained among the softest seen since the COVID-19 pandemic.

Head of Equity Research, West Africa at Stanbic IBTC Bank, Muyiwa Oni, attributed the downturn largely to seasonal weakness typical of January but warned that the sub-50 reading could point to deeper concerns. He noted that historical data show January readings usually trail December figures, except in 2024, but said this was the first time the index had crossed below the psychological growth threshold.

Oni maintained an optimistic outlook for the broader economy, projecting 4.1 per cent year-on-year growth in 2026. He said demand is expected to recover in the coming months, supported by government infrastructure spending, livestock development initiatives, easing trade constraints and fresh investments in oil, gas and manufacturing. He added that the Dangote refinery’s forward linkages, alongside expectations of lower interest rates, easing inflation and exchange rate stability, should bolster private consumption and business investment.

Business confidence dipped in January but remained positive overall, with firms hopeful that output would expand over the coming year
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Optimism was tied to expansion plans, increased stock holdings and expectations of improved new orders.

The Stanbic IBTC PMI survey, compiled by S&P Global from responses from about 400 private sector firms across agriculture, mining, manufacturing, construction, wholesale, retail and services, is regarded as a key early indicator of economic trends. Data for the January report were collected between January 12 and 28.