Increased activity in the manufacturing sector has led analysts to believe SA will reach pre-pandemic levels of GDP this year, earlier than initially forecast.
However, they warned that current improvements in the manufacturing sector could be short-lived as geopolitical tensions pose extensive threats to the global supply chain. This in turn will have cost implications for the domestic economy and also hurt sentiment.
This week, the PwC economic outlook report, the seasonally adjusted Absa purchasing managers’ index (PMI) and vehicle manufacturing association Naamsa all highlighted positive sentiment towards the manufacturing sector, pointing to faster expansion in activity.
Absa’s PMI indicated that all major sub-components measuring industrial activity rose in February, with the headline index remaining in expansionary territory at 58.6 index points — above the 50 mark, which separates expansion from contraction — up from 57.1 in January.
This is the highest level of manufacturing in almost 15 years, according to Bloomberg.
Similarly, PwC’s latest economic outlook states that a large number of sectors are seeing activity levels above those seen before Covid-19 struck. “Sector indices including freight transport, manufacturing production, transaction volume, mining production and [the] retail sales index scored higher than 100 points, used to indicate activity levels at December 2019,” reads the report.
PwC chief economist Lullu Krugel said industry activity reflects an improvement in demand conditions both locally and abroad.
Adding to the positive sentiment, Absa corporate and investment banking economist Miyelani Maluleke said another encouraging outcome on industry activity is the employment index. The index edged back up above the neutral 50-point mark to 50.7, a strong improvement following a dip to 42.4 index points in December and 49.2 in January.
Maluleke said that even though the employment index continued to hover around 50 for almost a year, the upward move suggests that employment levels may be stabilising in early 2022 after the sector bled jobs for several years before the Covid-19 shock.
He said the positive sentiment indicates that demand is improving, particularly export demand, and should support the recovery in the manufacturing sector.
Maluleke said the optimism is probably related to the waning effect of Covid-19 infections on the economy and the possibility that supply chain disruptions may disappear.
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