Bad turn for businesses in South Africa as activity tanks
South African manufacturers have failed to get out the starting blocks at the start of 2024, but there is some optimism about business conditions in the future.
The Absa Purchasing Managers’ Index (PMI) reflects an abysmal start to the year for the local manufacturing sector.
The headline index declined to 43.6 index points in January 2024, down from 50.9 in December. Worryingly, the decline resulted from a sharp deterioration in demand and activity.
“Outside of the global financial crisis in 2008/09 and the pandemic-induced lockdown period of 2020, the index has only fallen to this low level a handful of times,” said Absa.
Following an encouraging uptick in December, the business activity index plunged to 37.1 index points in January.
“The deterioration was despite relatively less load-shedding in January compared to most of 2023. A sharp decline in demand likely drove the decline in output as the new sales orders index fell to 37.2 index points,” added Absa.
According to the bank, some respondents confirmed demand as being lower than usual, and export orders were stuck below 50 for a third month, which does not happen often.
“A lack of materials and goods required in the production process may have also held back output. The inventories index declined again, to 37.7 in January, and reached the lowest level since mid-2020,” said Absa.
Silver Lining
Despite current woes, respondents turned more optimistic about business conditions going forward. The index tracking expected business conditions in six months’ time rose to 58.7, up from 57.9 in December.
“It is perhaps important to highlight that the survey asks respondents to compare their expectations relative to current conditions,” Absa noted.
“The improvement thus means that conditions are expected to be better than the current dismal environment, not better relative to ‘normal’ or long-term business conditions,” it said.
On the price front, purchasing prices ticked up once more. The index rose to 67.5, up from 62.1 in December.
A weaker rand exchange rate and a higher Brent crude oil price than in December likely drove this.
This is still somewhat below the average recorded in 2023 and well below 2022 – suggesting that upward price pressure remains fairly benign.
| Index | Nov | Dec | Jan |
|---|---|---|---|
| Business activity | 46.0 | 51.4 | 37.1 |
| New sales orders | 46.6 | 46.3 | 37.2 |
| Employment | 41.1 | 44.8 | 45.2 |
| Inventories | 42.8 | 44.4 | 37.7 |
| Supplier deliveries* | 64.6 | 67.7 | 61.0 |
| Purchasing prices* | 61.5 | 62.1 | 67.5 |
* Indices are inverted
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