Economic activity up in December

Economic activity increased in December, thanks to less load shedding, but domestic demand remained weak according to the Absa Purchasing Managers’ Index, which closed the year on a somewhat stronger footing and rose by 2.7 points to 50.9 index points.

According to the Bureau for Economic Research (BER) that conducts the economic activity survey for the Purchasing Managers’ Index (PMI), part of the uptick came from an encouraging increase in business activity, that only increased to above the neutral 50-point mark for the second time in 2023. (The only other month was January.)

Business activity reached 51.4 in December after 46.0 in November and 40.3 in October. Lisette IJssel de Schepper, senior economist at the BER, said businesses operating during the festive period may have benefitted from relatively less load shedding in December.

However, given that new sales orders did not improve further after a solid increase in November, she said underlying demand for manufactured goods remained relatively weak.

After a solid improvement in November to 46.6 from 39.7 in October, the new sales orders index remained largely unchanged, although export sales nudged up somewhat, but remained in negative terrain.

De Schepper said time will tell whether the improvement continues into 2024. The employment index also remained stuck well below 50 points at 44.8 after recording 41.1 in November and 41.0 in October.

The supplier deliveries index continued its upward trajectory and rose to 67.7 in December 2023, likely due to the intensifying problems at South African ports. This, in turn, hurts trade flows as a slowdown in supplier delivery times increases this index.

“It is concerning that the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further. The unavailability of inputs required could hurt production abilities and push up costs going forward.”

De Schepper said it was somewhat surprising to see survey respondents turn notably more optimistic about business conditions over the longer term. The index tracking expected business conditions in six months’ time rose by 16.9 points to 57.9, the best level since the 63.8 index points reached in January 2023.

“It could reflect some hope that the worst of the local rail and port challenges will be behind us by mid-2024 and that load shedding could be less intense than last winter. More subdued inflation and lower borrowing costs could also help on the cost front and spur demand.”