Business Maverick

MANUFACTURING SECTOR

Absa Purchasing Managers’ Index springs back into positive territory

Absa Purchasing Managers’ Index springs back into positive territory
The production line at the BMW South Africa Rosslyn plant in Midrand. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Just in time for Spring Day, the PMI’s release on Thursday, 1 September was a welcome economic green shoot.

The Absa Purchasing Managers’ Index (PMI), a key gauge of health in SA’s manufacturing sector, rose to 52.1 points in August from 47.6 in July. This reversed two straight months of decline and is a sign that manufacturing is starting to recover from the surge of rolling blackouts just in time for spring. 

The rise in the PMI signals that manufacturing output may be growing again this quarter after tanking in the April to June period as the twin shocks of the KZN floods and increased rolling blackouts hammered the sector.  

The wider economy is widely expected to have contracted in the sector quarter Q2 — Statistics South Africa will release that reading on Tuesday, 6 September — and another contraction this quarter would translate into a recession. A manufacturing recovery could help avert that.

So just in time for Spring Day, the PMI’s release on Thursday, 1 September was a welcome economic green shoot.

“Following a tough start to the third quarter, an easing in the intensity of load shedding meant that conditions in the manufacturing sector improved in August 2022 relative to July,” Absa said in a statement.

“The business activity index rose back above the neutral 50-point mark for the first time since March. Since then, output was hampered by the flooding in KZN and significant electricity supply disruptions.”


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There was also an emerging bud of good news on the inflation front against the backdrop of a 7.8% consumer inflation rate and one of 18% for producer price inflation, 13- and 14-year highs, respectively.

“On a positive note, the purchasing price index declined for a second consecutive month and is now at the lowest level since mid-2021. Importantly, this means that the rate of increase in costs is slowing, not that prices are declining,” Absa said.  

“The steep fall in the fuel price at the start of August likely helped with alleviating overall cost pressures, with a further notable decline in the fuel price expected next week. While headline producer price inflation for final manufactured goods remains very high, the PMI suggests that cost pressure at the start of the pipeline has moderated.”

There are still plenty of challenges constraining manufacturing and the wider domestic economy. Slowing global economic growth is one, even with the silver lining of falling fuel prices as a result.

Credit rating agency Moody’s on Wednesday cut its forecasts for overall growth in the G20 economies, which include South Africa.

“Moody’s Investors Service has reduced growth forecasts for G20 economies and now expects real GDP to rise 2.5% in 2022, down from a May projection of 3.1%, while its forecast for 2023 has been cut to 2.1% from 2.9%,” it said.  

Time will tell if this green shoot grows into summer or withers on the vine. DM/BM

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