The Absa PMI for April is one of the first indicators of how the South African economy is faring in the second quarter of 2022. And it is not faring well.
Absa’s PMI, which is based on a monthly survey of purchasing managers in the manufacturing sector, had started 2022 with three straight monthly gains, which brought it to 60 out of 100. That scorecard was hardly shooting the lights out but at least the broad trend was in the right direction.
So the slide to 50.7 from 60.0 in April is a major setback and as in July of last year, KZN’s woes – this time in the form of the lethal floods that washed across the province last month – are among the key factors behind the sudden fall in confidence.
“Even factories not directly affected by the flooding may have seen a drop in demand. In addition to the shock to domestic business conditions, respondents also noted a sharp drop in export sales. It remains to be seen whether the drop in exports was due to the temporary Durban harbour closure and other logistical constraints related to the floods, or whether this is due to a deterioration in external demand,” Absa said.
External demand hardly looks red hot in the wake of a surprise first quarter contraction in the US economy, sluggish European economic growth and harsh lockdowns in China.
Pointedly, Absa noted a plunge in the business activity index to 39.6 in April from 60.5 in March – a loss of over 20 points or a third of its previous level.
“This suggests a sharp monthly contraction in manufacturing output at the start of the second quarter. Even businesses not affected by the flooding, either directly or indirectly, had to grapple with stage four load-shedding during the month,” Absa said.
Encouragingly but oddly, the employment index rose by three points to 51.5, which puts it just back into positive territory. Absa said this “… may suggest that the declines in activity and demand may be deemed temporary, not necessitating producers to shed further jobs.”
That may be the case. But the employment index is also volatile and has showed surprising resilience before only to subsequently wobble badly. It remains to be seen if it maintains these levels.
Meanwhile it seems South Africa’s economy has had a faltering start to the second quarter of this year. DM/BM