Step in the right direction for South Africa

South African manufacturers have been boosted by an increase in business activity.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased by 6.7 points to 52.4 in July 2024, up from 45.7 in June.

The PMI is an economic activity index based on a survey by the Bureau for Economic Research (BER). A value of 50 indicates no change in activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.

“This reflects a solid start to the third quarter following a weak May and June,” said the BER.

The survey showed that both domestic and global demand has picked up, leading to higher activity.

The business activity index increased by 14.5 points to 50.8 in July, supported by new sales orders rising by a solid 17.5 points to 55.4 – the first time that the indices were in positive territory in three months.

In May and June, significant policy uncertainty remained and hurt demand.

The improvements could mean that on-hold orders are now being realised and translated into better activity.

In addition, export sales increased substantially in July following four consecutive months of declines.

That said, the inverted supplier deliveries are worsening (delays in delivery times), with the index measuring suppliers’ performance increasing from 56.1 in June to 61.9 in July.

“This may indicate that suppliers are not coping with handling the increases in demand following months of slower activity,” said the BER.

Also, worryingly, the uptick in production has not helped the employment index, which declined slightly from 46.3 in June to 45.4 in July.

Investec Economist Lara Hodes said that a sustainable lift in business confidence and growth is needed to rectify South Africa’s unemployment predicament. South Africa’s official unemployment rate is currently at 32.9%

The inverted purchasing price index continued to bring good news, dropping for the fourth straight month from 64.5 points in June to 63.1 points in July.

“This was the lowest in seven months and indicative of the continued easing of cost pressures.

“Petrol prices fell by about R1/litre, with a smaller decline in diesel at the start of July, alleviating pressure on costs.”

In addition, the index tracking expected business conditions in six months increased from 68.1 points in June to 69.4 points in July.

This is the most optimistic that respondents have been about their business conditions since early 2022.

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