‘Business activity up despite load shedding’

The Absa Purchasing Managers’ Index (PMI) for January shows increased business activity despite load shedding, although manufacturing PMI dipped slightly in January, but only time will tell if this improved performance can be sustained.

The seasonally adjusted Absa PMI for January came in at 53.0 index points last month, virtually unchanged from 53.1 in December, the third straight month it remained above 50.

Increased business activity and higher inventories balanced out the decline in the employment and new sales orders indices to levels below 50. The most encouraging movement was the significant, and surprising improvement in the business activity index compared to December, despite many respondents still flagged load shedding as holding back production and new sales orders dipping lower in January.

New sales orders dropped slightly as a result of weaker domestic demand, while export sales remained unchanged at fairly high levels during January. Recent signs of global economic resilience bode well for South African exporters, Absa says.

Economic research group Oxford Economics Africa says load shedding contributed to slowing output that adversely affect new sales orders, but it would be a positive start to the new year for the beleaguered manufacturing sector if these survey findings resulted in actual output increases.

“However, it remains to be seen whether this performance can be sustained in coming months, as the actual situation is more complicated. For some time now the manufacturing sector’s fundamental momentum has been sluggish.” According to Absa, continued activity growth requires a sustained improvement in demand and most likely a move to less intense stages of load shedding. The index tracking expected business conditions in six months’ time rose by 8.9 points to 63.8, the best level since early 2022.

“Given the poor potential for the domestic economy to accelerate demand growth for factory goods, this was likely driven by better expectations for the global economy,” Absa said.

After a steady decline, the purchasing price index increased the most since March las year, but Absa said this index remains low relative to its longterm average.

This means that cost pressure remains less intense compared to most of 2022, while the uptick in costs could possibly be linked to measures to offset the impact of load shedding on production.

Oxford Economics Africa pointed out that this increase comes after a period of steady decline and despite this increase, it is still below its longterm average.

Statistics South Africa’s latest producer price index report showed prices at the factory gate eased to 13.5% in December compared to 2021, down from 15.0% in November compared to 2021.

Manufacturing sector’s fundamental momentum has been sluggish