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Surge in power cuts undermines Absa PMI in September, manufacturing output likely contracted in Q3

Surge in power cuts undermines Absa PMI in September, manufacturing output likely contracted in Q3
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

The Absa Purchasing Managers’ Index sank over 4 points in September as the level of rolling blackouts intensified, fuel prices spiked and demand sagged in the EU and UK. Worryingly, the business activity sub-index averaged 43.3 in the third quarter (Q3) compared to 48.1 in Q2. This suggests manufacturing output contracted in the quarter, a bad sign for the overall gross domestic product GDP read for the period.

The Absa PMI posted a 4.1 point decline in September to 45.4, sinking deeper into negative territory below the neutral 50 mark. After the manufacturing sector’s performance drove better-than-expected GDP growth of 0.6% in Q2, it appears that output fell in Q3 — a signal that the wider economy probably contracted in the quarter.

Absa PMI

Source: Absa Purchasing Managers’ Index.

The PMI’s business activity index waved a big red flag, crumbling by 8.1 points to 41.9.

“This index was extremely volatile in the third quarter. Compared to August, there was a step-up in load-shedding during September,” Absa said.

“For the entire third quarter, the business activity index averaged 43.3, down from an average of 48.1 in the second quarter. The move lower would be consistent with a quarterly contraction in actual manufacturing output. If this materialises, it will weigh on overall GDP growth momentum in the third quarter.”

Indeed, as manufacturing was the main driver of the paltry growth of 0.6% that the economy posted in Q2, this reversal could see GDP contract for the period.

Other data for Q3, which ended on 30 September, also points to a slowing or contracting economy. Manufacturing output rose 2.3% year on year in July after climbing 5.9% in June — a significant slowdown — while mining production fell 3.6% on an annual basis in July. 

Read more in Daily Maverick: SA mining output falls in July and manufacturing growth slows, signalling fragile start for Q3 GDP

The new sales orders index was another red flag, tanking over 10 points to 35.3, its lowest level in over two years.

“External and domestic demand for SA manufactured goods seems to have been under pressure, with the export index hit hard in September. This most likely reflects the weakening growth momentum in the Eurozone (EZ) and the UK, both key export markets for local manufacturers. On the domestic front, restrictive borrowing costs and perhaps also the sharp fuel price hikes at the start of September weighed on demand,” Absa said.

With global oil prices near 12-month highs over $90 a barrel and the rand hovering around 19/dlr, the manufacturing sector and wider economy will not see any relief soon from rising fuel costs.

The bottom line is that the manufacturing sector is showing significant signs of stress and that bodes ill for job creation, export earnings, investment and the broader economy. DM

Gallery

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