Economic activity up in December but domestic demand remains weak – PMI

Economic activity increased in December thanks to less load shedding, but domestic demand remained weak according to the Absa Purchasing Managers’ Index (PMI) closed the year on a somewhat stronger footing and rose by 2.7 points to 50.9 index points.

According to the Bureau for Economic Research (BER) that conducts the economic activity survey for the PMI, part of the uptick came from an encouraging increase in business activity.

Business activity reached 51.4 in December after 46.0 in November and 40.3 in October. Lisette IJssel de Schepper, senior economist at the BER, says businesses operating during the festive period may have benefitted from relatively less load shedding in December.

However, given that new sales orders did not improve further after a solid increase in November, she says underlying demand for manufactured goods remained relatively weak. After a solid improvement in November to 46.6 from 39.7 in October, the new sales orders index remained largely unchanged, although export sales nudged up somewhat, but remained in negative terrain.

De Schepper says time will tell whether the improvement continues into 2024. The employment index also remained stuck well below 50 points at 44.8 after recording 41.1 in November and 41.0 in October.

The supplier deliveries index continued its upward trajectory and rose to 67.7 in December 2023, likely due to the intensifying problems at South African ports. This, in turn, hurts trade flows as a slowdown in supplier delivery times increases this index.

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Intensifying crisis at ports have a clear effect on delivery times

“It is concerning that the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further. The unavailability of inputs required could hurt production abilities and push up costs going forward.”

De Schepper says it was somewhat surprising to see survey respondents turn notably more optimistic about business conditions over the longer term. The index tracking expected business conditions in six months’ time rose by 16.9 points to 57.9, the best level since the 63.8 index points reached in January 2023.

“It could reflect some hope that the worst of the local rail and port challenges will be behind us by mid-2024 and that load shedding could be less intense than last winter. More subdued inflation and lower borrowing costs (domestically and globally) could also help on the cost front and spur demand.”

However, she says, the magnitude of the increase is significant. “Regarding the current level of the index, it is perhaps useful to flag that the index remains below its long-term average and while purchasing managers are notably more optimistic than through most of 2023, they are still not excessively upbeat.”

The purchasing price index also remained at a low level in December 2023 and ticked up only slightly relative to November. The index rose to 62.1 from 61.5 in November, after recording 62.9 in October.

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Economic activity subdued for most of 2023

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the index averaged 48.6 for the year as a whole and the latest PMI numbers show that economic activity picked up modestly in December after remaining subdued for most of 2023.

“South Africa’s economy is operating highly inefficiently and domestic industries are losing competitiveness. The current economic trends point to increased risks of stagnation in 2024.”

Van der Linde warns that without a sustained recovery in demand and unless investment increases, the broad-based economic growth needed to boost employment and welfare cannot happen. “We forecast the economy will grow by 0.7% this year, after having likely increased by 0.5% in 2023.”