Alarm bells for South Africa’s GDP

Confidence in South Africa’s manufacturing sector has declined amidst a challenging economic environment, with concerns over South Africa’s Q3 GDP data.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) dropped from 49.8 points in August to 45.4 points in September.

“Conditions in the SA manufacturing sector deteriorated at the end of the third quarter,” Absa said.

“The soft reading for the headline PMI was driven by very weak demand and constrained production.”

Regarding weak demand, September saw an outside decline in the new sales orders index, dropping from 45.7 in August to 35.3 in September – the lowest level seen since mid-2021.

Local and international demand for South African manufactured came under pressure, with the export index especially hit hard.

“This most likely reflects the weakening growth momentum in the Eurozone and the UK, both key export markets for local manufacturers. On the domestic front, restrictive borrowing costs and perhaps also the sharp fuel price hikes at the start of September weighed on demand,” Absa said.

The PMI business activity index also had a poor month, tanking by 8.1 points to 41.9.

During September, there was an increase in load shedding, which, combined with poor demand conditions, explained the low-level activity.

The business activity index dropped from an average of 48.1 in Q2 to 43.3 in Q3.

“The move lower would be consistent with a quarterly contraction in actual manufacturing output. If this materialises, it will weigh on overall GDP growth momentum in the third quarter,” Absa added.

The purchasing price index also jumped for the second month in a row (not a positive), which was consistent with sustained rand weakness and an increase in oil prices over the month. This means that there will also likely be a significant diesel price increase in October.

The supplier delivers index also remained high, signally supply-side disruptions following the logistics disruptions in July (N3 truck torchings) and August (Western Cape taxi strike).

Despite improving slightly, Absa said that the employment index remained at a depressed level as job creation in the manufacturing sector in Q3 was poor.

However, looking more positively, purchasing managers do not expect the current trading conditions to continue, with the index measuring expected business conditions hitting 55.6 – the highest level since March 2023.

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