South Africa’s level 4 lockdown threatens economic recovery – especially if it continues for more than two weeks
The move to adjusted alert level 4 lockdown restrictions at the end of June could stall the broader economy’s quarterly momentum at the start of the third quarter – especially if sustained for longer than the initial two-week period, Absa economists warn.
This could result in a possible slowdown in the demand for selected manufactured goods, and production as a result, the group said in its Purchasing Managers’ Index (PMI) research note on Thursday (1 July).
“Amid concerns about the magnitude of the third wave of Covid-19 infections and South Africa’s move from level 2 to level 3 in mid-June, purchasing managers’ assessment of expected business conditions already turned less positive in June,” Absa said.
The bank’s index tracking expected business conditions in six months declined for a second month to 59.2. While this still signals an anticipated improvement in business conditions, it is less so than before.
“The move to level 4 is likely to have soured expectations further, specifically for those businesses with close ties to the hospitality industry,” Absa said.
“On the positive side, the outlook for manufacturers targeting the European and US export markets remains very bright, with recent international PMI readings remaining at or near record-high levels.”
PMI
The purchasing managers index (PMI) is an economic activity index based on a survey conducted by the Bureau for Economic Research and sponsored by Absa.
The monthly surveys are conducted under a representative group of purchasing managers in the South African manufacturing sector.
These managers have to indicate each month whether a particular activity, such as new sales orders, for their company has increased, decreased or remained unchanged.
The seasonally adjusted PMI edged down slightly to 57.4 index points in June 2021 from 57.8 in May 2021.
However, all five of the headline PMI’s major subcomponents were above the neutral 50-point mark in June – a positive sign for South Africa’s economic recovery.
Furthermore, the average reading of both the headline PMI as well as the business activity index during the second quarter was higher than recorded in the first quarter of 2021.
“This suggests that the sector’s output recovery was maintained in the second quarter, with another quarterly expansion likely,” Absa said
“A significant annual expansion is effectively guaranteed given the extremely low base set in the second quarter of 2020.”
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