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The Absa PMI has declined back to contractionary territory in August, decreasing by 8.8 points to 43.6 in August 2024, down from 52.4 in July.
According to Absa, that sponsors the Purchasing Managers’ Index (PMI), 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 business activity index decreased by 11.9 points to 38.9 in August after July’s strong performance when it stood on 50.8. Absa says this reading for business activity is at one of its lowest points this year, as demand takes longer to recover.
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In line with business activity, new sales orders plunged to 34.6 points after a significant improvement in July when some sales orders that had been on hold due to political uncertainty started to come through.
However, Absa says, demand did not expand at the same pace in August. “It is important to remember that the index measures month-on-month activity and therefore the downtick signals a decline relative to what seems to have been a strong July when the figure was 55.4.
“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.”
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The index measuring supplier deliveries decreased by 4.5 points, indicating an improvement, as this index is inverted. Absa says this could be due to 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, falling to 42.2 from 45.4 in July and 46.3 in June.
The purchasing price index did not change significantly, confirming market consensus and recent inflation data releases that inflation has peaked, Absa says. The reading of 63.3 is the second lowest this year after 63.1 in July and 64.5 in June.
“Given stable oil prices and a relatively stronger currency, fuel prices decreased slightly at the beginning of August, with more significant cuts for September,” Absa says.
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The index tracking expected business conditions to decrease in August. Despite the decline, it remains at a high level and signals an improvement in business conditions going forward, according to Absa.
Jee-A van der Linde, senior economist at Oxford Economics Africa, says although the PMI fell sharply, the latest survey data shows purchasing managers remain upbeat about future business conditions amid a benign inflation environment.
“Overall, the latest PMI data reflects high volatility in the manufacturing sector and indicates a deterioration in month-on-month activity from what appears to have been a strong July.
“However, easing supply-side constraints and lower fuel prices suggest that conditions should improve in the second half of the year and we believe that the September number could be better considering how volatile the PMI has been lately.
“We are cautiously optimistic that demand will improve gradually throughout the second half of 2024 which should translate into stronger economic activity. Our base case is for real gross domestic product (GDP) to grow by 0.8% in 2024, averaging around 1.7% per year over the next five years.”
The headline manufacturing PMI failed to sustain the robust performance recorded at the start of Q3:
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