Business Maverick

RECESSION RUMBLINGS

Absa PMI plunges in May despite lack of power cuts as manufacturing sector braced for elections 

Absa PMI plunges in May despite lack of power cuts as manufacturing sector braced for elections 
Manufacturing sector falters in May despite absence of rolling blackouts, with Absa PMI plummeting to negative territory. (Photo: Gallo Images / Fani Mahuntsi)

The Absa Purchasing Managers’ Index, a key barometer of confidence in the manufacturing sector, took a nose dive of over 10 points into negative territory in May. That suggests manufacturing output may have declined during the month amid jitters about the elections, and raises the prospect that the economy is tipping into a recession. 

There were no nationwide power cuts during the month of May, but the manufacturing sector did not spark up as a result.

The Absa Purchasing Managers’ Index (PMI) tanked in May to 43.8 points from 54.0 in April, bringing it into negative territory.

“The drop was despite another month of no load shedding, although local power outages remain frequent, and the deterioration seems to be driven by a significant drop in demand,” Absa said in a statement.

“Numerous respondents said that orders were put on hold as clients waited for the election results. The PMI has been in contractionary territory for three out of five months this year, as the manufacturing sector seems volatile in an election year.”

Some of the falls among the sub-indices were very steep — and worrying.

The business activity index plunged over 19 points to 38.1 in May from 57.2 while new sales orders declined to 37.8 from 55.6 in April.

Absa PMI

Graph showing the Purchasing Managers’ Index. (Graphic: Absa)

“Amid sustained high interest rates and low credit extension, domestic demand remains sluggish. Respondents state that orders are drying up as consumers seem to be focusing on necessities,” Absa said. “Export sales also fell back in May, putting further pressure on demand.”

This underscores the fragility of the South African economy.

The power shortages and rolling blackouts dubbed as “load shedding” by Eskom have for years been seen as the biggest constraint on economic growth in South Africa.

Two straight months without Eskom implementing such cuts nationwide should have been a major boost to economic activity. And yet, in part because of concerns about the election, the manufacturing sector seems to have withered during the month of May.

This also raises the possibility that the economy is falling into a recession, a backdrop that may help explain the drubbing the ANC took in the election and the appeal of extremism reflected in the surprising performance of former president Jacob Zuma’s uMkhonto Wesizwe (MK) party.

 

The gross domestic product (GDP) read for the first quarter (Q1) of this year will be unveiled by Statistics South Africa (Stats SA) on Tuesday at 1130.

The economy in Q1 is widely expected to have barely grown or perhaps even contracted after posting growth of just 0.1% on a quarterly and seasonally-adjusted basis in Q4 of last year, when it narrowly dodged a recession which is defined as two straight quarters of economic contraction.

Read more in Daily Maverick: SA’s economic growth estimate looks bleak 

“We estimate a steady 0.1% quarterly growth, supported by the anticipated rebound in the agricultural sector’s Gross Value Added and stable growth in the financial services sector. However, the risk of a GDP contraction is quite material,” said Thanda Sithole, FNB Senior Economist.

If the economy did shrink on a quarterly basis in Q1 — and the May PMI reading suggests the manufacturing sector contracted in May after possibly growing in April — then it is conceivable that the election took place as a recession was unfolding.

Even if this was not the case, Q1 growth was likely very subdued and a big rebound this quarter — despite the improved power situation — seems unlikely.

The economic outlook for June, the last month of this quarter, will in large part hinge on the coalition government that emerges from this election. DM

Gallery

Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.