Another blow to business in South Africa

 ·3 Jul 2023

The Absa Purchasing Managers’ Index (PMI) declined by 1.6 index points to 47.6 in June, down from 49.2 in May.

Absa said that this is the lowest level since mid-2021. “For the first time since 2018, all five subcomponents used to calculate the headline PMI were below the neutral 50-point level.”

This points to worsening business conditions in the sector, said Absa.

The index provides monthly feedback from business managers and is determined through surveys conducted with purchasing managers working in the manufacturing sector of the country.

Absa takes the feedback from industry heavyweights and processes all the data to create the index, with 50 representing stability, higher values indicating increased activity, and lower levels meaning decreased activity.

The graph below shows the change in PMI since 2000:

According to Absa, a key drag on the sector comes from weak demand, with the new sales orders index edging down once again as the decline in export sales deepened and domestic demand remains under pressure.

The new sales index declined from 47.5 in May to 45.6 in June.

“On a more positive note, the business activity index improved relative to May, although it remained below the neutral 50-point mark for a fifth consecutive month.”

The index rose from 47.7 to 48.9 in June.

Absa said the improvment in business activity was likely back to signficantly less load shedding during the day this past monh as weak demand conditions ‘thwarting a bigger recovery’.

For large portions of June, load shedding was suspended during the day as cool weather, lower demand and improved generation helped the power utility Eskom keep rolling blackouts to around roughly stage 1.

“For the full second quarter, the business activity index came in slightly lower than the first-quarter average, but this is solely on account of a high January reading.”

“Broadly speaking, the level of the business activity index suggests that momentum in official production data remained very subdued in the second quarter,” said Absa.

Absa said that, similar to business activity, there was also somewhat better news on the cost front, as the purchasing price index declined to the lowest level since the start of the year.

The index declined from 77.0 to 71.3, reported Absa.

“A stronger rand exchange rate (relative to the previous month) and a drop in the fuel price at the start of the month likely contributed to the moderation in cost pressures,” said the bank.

The June index showed a significant change in the outlook for the future.

The index measured anticipated business conditions in six months improved from a very low 43.7 to 52.4. Although it is still below the long-term average, this indicates that purchasing managers anticipate a more positive situation by the end of the year rather than a worsening one.

The table below shows the changes in PMI subcategories over the past three months.

Purchasing Price75.077.071.3
Supplier Deliveries53.053.947.4
New Sales Orders44.347.545.6
Business Activity47.647.748.9

Read: It’s too late for 2023 – Reserve Bank shifts load shedding hopes to next year

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