Manufacturing weakens, but there are green shoots
Activity in SA’s manufacturing sector weakened further in March to round off the first quarter on a downbeat note, but the subindex measuring expected business conditions in six months’ time unexpectedly rebounded sharply.
The rebound suggests that purchasing managers generally expect conditions to look better later in 2023.
Manufacturing is SA’s fourthlargest sector, contributing 14% to GDP, and the data provides valuable insight into the health of the country’s economy.
The Absa purchasing managers index (PMI), compiled by the Bureau for Economic Research (BER) in partnership with the bank, fell to 48.1 index points in March, down from 48.8 in February.
A reading above 50 suggests expansion in the sector and one below 50 signals a contraction.
Load-shedding has become a bugbear for the energy-intensive sector, overshadowing the positive effects brought by the reopening of China’s borders in January. State-owned power monopoly Eskom’s supply is battling to keep up with demand, hurting the production sectors of the economy in particular.
Businesses and households have been subjected to scheduled rotational blackouts almost every day since the start of 2023. With the country heading into winter, when demand could far outstrip available supply, the situation could deteriorate.
“Load-shedding has added to input costs for production in SA, with self-generation more expensive, while production losses (and wastage, particularly for food) increase, with food the highest weighted item and biggest driver of inflation,” Investec chief economist Annabel Bishop has said in note.
“SA’s energy crisis is having a severely suppressing effect on growth and job creation, and shows little immediate likelihood of being resolved, reducing business and consumer confidence, and further weakening the growth outlook.”
Still, the business activity subindex improved to 48.1 from 45.5, though it is below the 56 reached in January.
BER senior economist Lisette de Schepper said on Monday that the business activity subindex suggests manufacturing output may improve in the quarter of 2023, after contracting in the fourth quarter of 2022.
The new sales orders index dropped to 48.5 from 49.4, while the employment index fell for a third consecutive month to 45.4 from 47.1.
After a sharp deterioration in February, the index tracking expected business conditions in six months’ time rose to 55.5 from 46.8 in February, but uncertainty still remains on how the power crisis will unfold.
In a further sign that delivery times are normalising, the supplier deliveries index recorded another steep decline to reach 50.8, the lowest level since the start of the pandemic. This is likely partly due to less constrained global supply chains, a trend also reflected in some international PMI surveys.