South African business conditions appear to be deteriorating in the manufacturing sector in the face of slow local demand, but optimism about the future is up, the latest Absa Purchasing Managers Index (PMI) showed on Monday.
According to the report released by the Bureau for Economic Research and Absa, the seasonally adjusted Absa PMI ticked down slightly to 48.1 in March from 48.8 in February. The PMI is an economic activity index conducted with a representative group of purchasing managers, who indicate each month whether a particular activity for their company, such as new sales orders, has increased, decreased or remained unchanged. This results in an index for which a value of 50 indicates no change in the activity, a value above 50 indicates increased activity, and a value below 50 indicates decreased activity.
“After a solid start to the year, this was the second straight month that the index pointed to a deterioration in business conditions in the manufacturing sector. Still, when considering the performance of the business activity index through the entire first quarter, it suggests that output could improve from the quarterly contraction recorded in the fourth quarter of 2022,” the report said.
“On the other hand, domestic demand seems to be struggling, with some comments referring to local demand faltering due to load-shedding. Indeed, in contrast to business activity, the new sales orders index performed worse relative to the fourth quarter,” the report noted.
This was despite the PMI’s index tracking export sales performing well during the first quarter and rising to an almost two-year high in March. In a further sign that delivery times are normalising, the supplier deliveries index recorded 50.8, the lowest level since the start of the pandemic.
“This is likely partly due to less constrained global supply chains, a trend also reflected in some international PMI surveys. This is a positive development for the sector. However, on the negative side, sustained weak demand likely also explains some of the recent downward move in South Africa,” the report added.
Meanwhile, the purchasing price index halted its recent upward trend and fell slightly in March. This was despite a slight increase in the diesel price at the start of the month and a weaker average rand/US dollar exchange rate, compared to February. However, less intense load-shedding during the second half of March would have helped lessen the costs of running diesel generators.
However, survey respondents were more optimistic about business conditions in the coming months. Following a sharp deterioration, the index tracking expected business conditions in six months’ time rose to 55.5 in March from 46.8 in February.
“This means that purchasing managers generally expect conditions to look better later this year. However, the long-term average of this index is well above the current reading, suggesting less optimism than usual,” the report said.
