Business Maverick


Absa Purchasing Managers’ Index falls to 47.6 in June, lowest level in two years

Absa Purchasing Managers’ Index falls to 47.6 in June, lowest level in two years
The Gibela Rail Consortium Dunnottar factory on 4 July 2022 in Nigel, South Africa. (Photo: Gallo Images / OJ Koloti)

The Absa Purchasing Managers’ Index (PMI), a key indicator of the manufacturing sector’s health, declined 1.6 points in June to 47.6, its lowest level since mid-2021.

At 47.6, the PMI slid further into negative territory, as 50 is the neutral mark. And that was not the only worrying signal from the latest survey of purchasing managers in the manufacturing sector. 

“For the first time since 2018, all five subcomponents used to calculate the headline PMI were below the neutral 50-point level, pointing to a worsening of business conditions in the sector,” Absa said. 

“A key drag on the sector seems to come from weak demand, with the new sales orders index edging down once again as the decline in export sales deepened and domestic demand remains under pressure.”

This points to a softening of demand on both the domestic and export fronts. In the case of the former, rising interest rates, slowing but still elevated inflation and an economy that is barely growing in the face of the power crisis have all combined to sink demand for manufactured products. And a slowdown in the global economy is clearly taking a toll on South African exports. 

“On a more positive note, the business activity index improved relative to May, although it remained below the neutral 50-point mark for a fifth consecutive month. 

“The index rose from 47.7 to 48.9 in June. The improvement was likely on the back of significantly less [daytime] load shedding during the month, with weak demand conditions thwarting a bigger recovery,” Absa said. 

So, while the lights remained on longer in June, demand remains weak. 

Among other things, this indicates that the power situation will likely have to show material improvement over an extended period to boost demand. 

Still, the improvements seen in June are lifting spirits. The index reflecting expected business conditions in six months rose to 52.4 in June from 43.7 in May, a significant uptick. 

“To be sure, the current level remains well below the long-term average, but at least signals that purchasing managers expect conditions to look better by the end of the year instead of worse,” Absa said. 

Overall, the June PMI read potentially points to contracting manufacturing output which in turn bodes ill for wider economic growth. South Africa’s economy dodged a recession in the first quarter (Q1) of this year when it grew a sluggish 0.4%, and data from April suggests Q2 got off to a better-than-expected start. 

Manufacturing in April rose 3.4% year on year, overshooting market expectations, and mining output for the month also surprised on the upside. 

Read more in Daily Maverick: SA current account, rallying rand, manufacturing data are rare gems of (relatively) good economic news

But the subsequent PMI reads suggest that manufacturing activity has been constrained, and neither the domestic nor export markets look promising at the moment. DM


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