Outlook for business in South Africa the worst since hard lockdown in 2020

Absa released its latest Purchasing Managers’ Index (PMI), showing businesses in South Africa have little hope for the near term as business conditions deteriorated for the fourth consecutive month.

The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. The monthly surveys are conducted under a representative group of purchasing managers in the South African manufacturing sector.

According to the bank, the PMI edged down to 49.2 in May 2023 from 49.8 in April, signalling a lack of positive business activity and production.

In addition to the downbeat assessment of the current environment, respondents turned notably more negative about business conditions in the future, said Absa. The index tracking expected business conditions in six months fell to 43.7 in May from 51 in April.

The bank noted that this is the most pessimistic respondents have been about the near-term outlook since the strictest phase of South Africa’s Covid-19 lockdown three years ago.

The headline PMI is calculated as the weighted average of the following indices: Business Activity, New Orders, Employment, Supplier Deliveries, and Inventories.

The indices are then calculated by taking the percentage of respondents that reported an increase and adding it to one-half of the portion that reported no change.

This results in an index for which a value of 50 indicates no change in the activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.

Regarding the business conditions for May, the business activity index was virtually unchanged from a subdued April – sitting at 47.7 – as load shedding was roughly similar in April and May and likely did not weigh more or less on activity in May than the previous month, said the bank.

However, the average index level of business activity in the first two months of the second quarter is below the first-quarter average, meaning the sector may again detract from quarterly GDP growth after an expected expansion in the first quarter.

The new sales orders index was also stuck in negative terrain for the fifth straight month at 47.5, although it improved from April. While export sales had held up well so far in 2023, respondents observed a notable deterioration in May.

The index reported that employment across the sector remained unchanged. This is not unexpected, given little movement in the demand and activity indicators.

Absa also noted that the purchasing price index peaked again in May at 77.0.

The bank said the significantly weaker rand exchange rate likely added to upward pressure on costs and offset the mitigating impact of the drop in fuel prices at the start of May.

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