The momentum of SA’s manufacturing sector recovery slowed for second consecutive month in June, with level 4 lockdown restrictions at the end of the month now posing a renewed threat, according to an industry survey published on Thursday.
The Absa Purchasing Managers’ Index (PMI) — released in conjunction with Stellenbosch University’s Bureau for Economic Research — fell to 57.4 in June from 57.8 the month before, with an assessment of expected business conditions deteriorating slightly.
The index is an important gauge of the health of a sector that contributes about 14% of GDP. A reading below 50 indicates a contraction in activity, while a reading above 50 points to expansion.
The sub-indices of the PMI include business activity, new orders, employment, supplier deliveries and inventories.
June marks the end of the SA’s second quarter, and with the commencement of level 4 lockdown at the end of the month extending into July, output may be affected. The tighter restrictions, including the ban on alcohol sales for the fourth time, were imposed to combat a third wave of Covid-19 that has hit Gauteng especially hard. The province accounts for about one-third of SA’s GDP.
The business activity index lost 2.6 points to 56.2 in June, with Absa noting that the level 4 restrictions do not directly affect manufacturing capacity, but that output may well suffer if demand once again declines. Those in the alcohol industry, or with ties to hospitality and leisure, could be hit harder.
“However, the move to adjusted alert level 4 lockdown restrictions at the end of June, especially if sustained for longer than the initial two-week period, could stall the broader economy’s quarterly growth momentum at the start of the third quarter,” Absa and the BER said in a statement.
“This could result in a possible slowdown in the demand for selected manufactured goods, and thus production.”
More positively, the employment index rose above 50 points after dipping below the neutral level in May.
Quarterly employment statistics from Stats SA for the three months to end-March showed an increase of 4,000 formal jobs in the manufacturing sector compared with the prior prior quarter. But that was still down by 95,000 compared to the same period of 2020.
“This means that even if the job losses have now stopped, the sector has a long way to go to regain its pre-Covid-19 level of employment,” Absa and the BER said.
Absa economist Miyelani Maluleke said the survey shows that 12 days of power cuts had a relatively limited effect on output, while demand conditions remain supportive. Near-term expectations have softened slightly amid the third wave, she said.
The sub-index measuring manufacturers’ expectations in six months time fell 4.2 points to 59.3.
Maluleke noted that the survey was mostly conducted before level 4 restrictions were announced, but added “our view is that the nature of lockdown restrictions in place at this stage will have a limited direct effect on manufacturing sector activity.”
Capital Economics senior emerging markets economist Jason Tuvey agreed that the lockdown measures announced on Sunday would have only a limited effect on SA's economy.
“For the manufacturing sector at least, no limits have been imposed on operating capacity — although beverage producers will suffer due to the latest alcohol ban,” said Tuvey. “That said, the recovery still faces a number of headwinds, including slow vaccination progress, persistent power problems and the dampening effect of fiscal austerity on demand.”
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