Absa PMI shows subdued economic activity in fourth quarter

Although the Absa Purchasing Managers’ Index (PMI) rose 2.8 index points to 48.2 in November, it still showed subdued economic activity in the fourth quarter of the year.

The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa among a representative group of purchasing managers in the South African manufacturing sector. These purchasing managers have to indicate each month whether a particular activity for their company increased, decreased or remained unchanged.

According to the BER this was the first increase after two months of a decline in the headline index, although it failed to return to positive terrain. The business activity and new sales orders indices also still point to declining activity and demand, although it was at a slower rate than before.

The business activity index rose 5.7 points to 46, while new sales orders booked an even bigger 6.9-point increase in November to 46.6 points. The BER says while these solid improvements are encouraging and point to some recovery in underlying demand filtering through to better activity, there are some worrying signs in the survey results.

These worrying signs include the fact that higher activity did not filter through to the employment index, which remained largely unchanged at a low 41.1 index points in November. Another concern is that the congestion at South Africa’s ports is seemingly resulting in a slower delivery of supplies.

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Further impact of supply-side constraints in PMI

Respondents noted that the unavailability of inputs required could hurt production abilities and push up costs. Exports were also under pressure and the BER says it is worrying that it seems that it will take at least a few months for the disruptions at the harbours to clear up, which means that this could have a lingering negative impact on the sector.

The expected business conditions index declined further in November and is now at its weakest level since the strictest months of South Africa’s Covid-19 lockdown in 2020. After a significant 12.2-point decline in October, the index lost a further 2.4 points to reach 41 in November.

The BER says this means that purchasing managers expect business conditions to deteriorate in six months. Beyond issues with logistics, the recent ramp-up in the intensity of load shedding, after some weeks of respite, may also have depressed forward-looking sentiment.

However, there was some good news on the cost front, with the purchasing price index continuing its downward trend and easing to 61.5 index points in November. The BER says this is the lowest level since early 2018 and suggests that after a brief reacceleration in price pressure earlier this year amid a sharply weaker rand exchange rate, the moderation continued through the second half of the year.

After two months of steep declines, the business activity index recovered some of these losses in November, with the index rising to 46, still stuck in contractionary terrain for a 10th straight month. While demand improved somewhat in November, the ramp-up in the intensity of load shedding towards the end of the month may have curtailed activity growth, the BER says.

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Solid improvement in new sales orders

An encouraging development was the solid improvement in the new sales orders index in November after a few months of signalling very depressed underlying demand. In November the index rose to the best level since early this year and still points to weakening demand, but the rate of the decline has slowed.

Despite an uptick in activity, there was little change in the employment index and it remained stuck below the neutral 50-point mark throughout 2023. Official jobs data also confirms that the sector shed jobs during the first three quarters of the year.

The inventories index declined for a third consecutive month to 42.8 in November, the lowest level since mid-2021 and the BER says this might be linked to the worsening of supplier deliveries performance due to congested ports.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the PMI shows that South Africa’s economy is operating highly inefficiently at the moment and domestic industries are losing competitiveness.

“The current economic trends point to increased risks of stagnation in 2024. Without a sustained recovery in demand and unless investment increases, the broad-based economic growth needed to boost employment and welfare cannot happen,” he warns.

“We forecast the economy will grow by 0.8% this year and by 1.0% in 2024,” he says.