Business Maverick

Business Maverick

Recession Watch: Absa PMI edges up in December but remains subdued

Recession Watch: Absa PMI edges up in December but remains subdued
Men wait for work in the informal sector with around 200 other job seekers at a road junction in Cape Town, 24 June 2020. (Photo: EPA-EFE/NIC BOTHMA)

The Absa Purchasing Managers Index (PMI), a key gauge of manufacturing activity, crept above the neutral 50 mark in December but is hardly shooting the lights out. The best that can be said about the reading is that it raises the prospect that South Africa may have narrowly avoided a recession in the fourth quarter (Q4) of last year. 

The ABSA PMI rose in December by 2.7 points to 50.9, meaning it has gone from negative territory into positive terrain, but only by a slim margin. 

Absa noted that there was “an encouraging increase” in the business activity index, which added 5.4 points to 51.4. The bank said this was perhaps a reflection of the decrease in rolling power cuts during the festive season. That would have lifted the spirits of manufacturers who were actually manufacturing then, with the dearth of power cuts explained in part by the fact that many were not. 

But new sales orders did not improve after a bounce in November, signalling that demand for manufacturing goods is still subdued, while the employment index remained stuck below the neutral 50 mark — a bad sign for job creation. 

“Worryingly, the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further. The unavailability of inputs required could hurt production abilities and push up costs going forward,” Absa said. 

This state of affairs will be worsened by the disruption to global trade through the Red Sea triggered by Houthi rebel attacks on ships in response to Israel’s bombardment of Gaza.  

Still, the purchasing managers surveyed were relatively upbeat about business conditions in the longer term. 

“The index tracking expected business conditions in six months’ time rose by 16.9 points to 57.9. This is the best level since the 63.8 index points reached in January 2023. It could reflect some hope that the worst of the local rail and port challenges will be behind us by mid-2024 and that load-shedding could be less intense than last winter. More subdued inflation and lower borrowing costs (domestically and globally) could also help on the cost front and spur demand,” Absa said. 

Overall, the PMI’s December performance offers a ray of hope that South Africa’s economy may have dodged a recession in Q4 2023 after contracting 0.2% in Q3. South African mining and manufacturing production exceeded expectations in October, but in the latter case base effects were at play

And at 50.9, the PMI hardly underscores a mountain of confidence in the manufacturing sector. DM

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