Some good news for businesses in South Africa

 ·1 Feb 2023

Absa’s latest Purchasing Managers’ Index for January 2023 shows that business activity in South Africa has improved in the first month of the year, despite non-stop load shedding dragging the economy.

The PMI found that despite many business owners flagging load shedding as a stall on production and new sales dipping lower, the country still faces a promising start to the year.

The index is based on surveys with purchasing managers in the country’s manufacturing sector. The managers provide monthly insights into their business activity.

Absa processes the data to create an index, with 50 representing stability, higher values indicating increased activity, and lower values indicating decreased activity.

The overall index for January came in at 53.0 points, virtually unchanged from 53.1 in December.

According to Absa, the most notable and positive metric was the sizeable increase in business activity.

“Following a poor ending to a dismal year, the business activity index surged higher in January. While encouraging, it remains to be seen whether this can be sustained in coming months,” said Absa.

“Indeed, many of the respondents flagged load shedding as a drag on inflation.”

Absa recorded the following business activity metrics:

  • November: 49.5
  • December: 45.2
  • January: 56.0

Absa noted that alongside improved business activity, its inventories metric returned to positive terrain. This, in turn, counteracted a decline in employment and new sales orders that were below 50.

Absa said that the inventories index more than recovered from a drop below the neutral 50-point mark – rising by 6.8 points to its best level since August last year.

A sustained improvement in demand and a move to less intense stages of load shedding would ensure that activity growth continues, said Absa.

“In this regard, the increase in the expected business conditions index was encouraging. The index tracking expected business conditions in six months’ time rose by 8.9 points to 63.8 – the best level since early 2022,” reported Absa.

The bank said that the increase in expected business conditions was primarily driven by a more optimistic outlook for the global economy – less so by the domestic.

“There are more signs of the European economy avoiding a near-term recession and the reopening of the Chinese economy providing a further boost to global demand,” Absa added.

In terms of Absa’s purchasing price index, it booked its largest increase since March 2022. Despite the increase, the bank said it remains low relative to its long-term average – meaning cost pressure remains less intense than most of 2022.

“The uptick in costs could possibly be linked to measures to offset the impact of load-shedding on production,” said Absa.

The graph below shows a snapshot of PMI and manufacturing production over the course of 22 years:

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