The Absa Purchasing Managers’ Index (PMI) declined to contractionary territory on the back of high inflation and interest rates and slow global and domestic demand in August.
Bureau for Economic Research economists reported that the Absa PMI declined by 8.8 points to 43.6 in August 2024, down from 52.4 in July, marking the fifth month out of eight this year that the reading has edged into contractionary territory.
“This reflects high volatility in the sector in a year of political uncertainty, high but slowing inflation, elevated borrowing costs, and sluggish global and domestic demand, which has not been strong enough to fuel a sustained rebound in production,” the BER economists said.
Business activity index decreased by 11.9 points to 38.9 in August. In line with this decline, new sales orders plunged to 34.6 points. This follows a significant improvement in July when some sales orders that had been on hold due to political uncertainty started to come through.
However, demand did not expand at the same pace in August.
“It is important to remember that the index measures month-on-month activity, so the downtick signals a decline relative to what seems to have been a strong July,” the economists said.
Many respondents flagged significantly weaker sales and orders on the domestic front. Export sales contracted in August, possibly due to supply chain issues and weak activity in Europe, and slower than expected growth in China.
The index measuring supplier performance decreased by 4.5 points, indicating an improvement (as this index is inversed). This could be because of a decrease in new orders, with suppliers under less pressure to meet demand.
“Worryingly, the employment index declined for a second consecutive month, and has remained in contractionary terrain since March due to volatile activity in the sector,” the economists said.
The purchasing price index did not change significantly, confirming market consensus and recent inflation data releases that inflation has peaked. The reading is the second lowest this year.
The index that tracks expected business conditions in six months’ time decreased to 61.3 points in August from 69.4 points in July.
“Despite the decline, it remains at a high level and signals an improvement in business conditions going forward,” the economists noted.
