After surprising on the upside in January, manufacturing sector activity weakened sharply in February as power shortages hit factories hard.
The Absa purchasing managers’ index (PMI), released on Wednesday and compiled by the Stellenbosch-based Bureau for Economic Research in partnership with the bank, fell to 48.8 index points in February, down from 53 in January, 51.3 in December, and well below the market consensus of 50.
Recent signs of global economic resilience — including increasing evidence that the eurozone will avoid an economic downturn in the near term and that the reopening of the Chinese economy will lift global demand even more in 2023 — have bode well for SA exporters.
But this is counterbalanced by various local factors. The recent greylisting announcement, organised crime, power outages, and downtime owing to inefficiencies at state-owned rail freight utility Transnet have weighed heavily on sentiment. Economists say rapid, urgent implementation of outlined reforms is needed to lift confidence and accordingly encourage investment and growth.
This is the first time since September 2022 that the headline index fell below the neutral 50-point mark, pointing to a marked deterioration in business conditions in the manufacturing sector.
The sector is SA’s fourth-largest, contributing 14% to GDP, and the numbers provide valuable insight into the health of the country’s economy.
A reading above 50 points suggests expansion in the sector and one below 50 signals a contraction.
Absa senior economist Miyelani Maluleke said activity in the manufacturing sector was likely to remain volatile in the months ahead, in light of the continued power cuts.
“The February survey period included an unprecedented seven consecutive days of stage 6 load-shedding, which was likely top of mind for many respondents,” Maluleke said.
“Load-shedding featured frequently in the commentary where respondents explained why activity declined relative to the previous month.”
Subindex
The data shows that while the decline in headline PMI was broad-based, the business activity subindex was hit hardest, falling by 10.5 points to 45.5 and almost wiping out the gain in January.
As with the headline reading, new sales orders also contracted for a second consecutive month, reaching the lowest level since October 2022. That was despite a solid improvement in export sales, which points to weaker domestic demand.
Investec’s Lara Hodes said the slump in new sales orders can be attributed to lacklustre local demand, with confidence and investment potential dragged down by the country’s challenges. Moreover, consumers remain constrained, contending with still high inflation and elevated interest rates.
The index measuring expected business conditions in six months fell to 46.8 points in February, the lowest since May 2020. “Respondents have not been this downbeat about future conditions since the country was slowly moving out of the strictest phase of the Covid-19 lockdown,” Maluleke said.
The purchasing price index also deteriorated, surging for a second month to reach the highest level since September 2022.
The survey took place while the rand was weak against the US dollar, largely trading above R18/$.
“This would have filtered through to the costs of especially imported raw materials and intermediate goods,” Maluleke said. “The surge in the PMI’s price index suggests that we may see a renewed acceleration in factory-gate prices. That said, the index remains well below the peak reached in the first months of 2022.”
The employment index also fell further in February and is now firmly below 50 index points after an unexpected rise above that level in December.
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