Despite Absa PMI dropping in April, SA business conditions are very likely to remain strong
BUSINESS conditions in the manufacturing sector in South Africa are expected to remain strong in the sixmonth period ahead in spite of the floods that left more than 400 people dead in KwaZulu-Natal, severely disrupting activity in April.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released yesterday by the Bureau for Economic Research showed that a number of factories implemented temporary work stoppages to deal with the catastrophic natural disaster. The Absa PMI fell sharply by nearly 10 points to 50.7 index points in April from a healthy 60 points in March, following three consecutive monthly increases.
This was the lowest level of the PMI since July 2021 when unprecedented looting and rioting shook local production and demand during civil unrest.
Absa said that business activity and new sales declined in the wake of devastating floods in KZN, which left the province with significant infrastructure damage totalling more than R17 billion.
Economists had already forecast that rotational power cuts and disruptions related to the floods would have weighed on production, while globally persistent geopolitical tensions would continue to exacerbate supply side constraints and impede international trade.
Absa senior economist Miyelani Maluleke said the flooding led to facilities in several manufacturing sub-sectors being forced to temporarily halt production to assess damage and address
transport issues of staff. Maluleke said the business activity index of the PMI plunged more than 20 points to 39.6 index points in April, suggesting a sharp monthly contraction in manufacturing output at the start of the second quarter.
The new sales orders index was another big drag on the PMI, with the index falling deep into negative terrain as the temporary production stoppages likely contributed to the decline in demand. “Even factories not directly affected by the flooding may have seen a drop in demand, and had to grapple with Stage 4 load shedding during the month,” Maluleke said. In addition to the shock to domestic business conditions, Maluleke said respondents also noted a sharp drop in export sales.
The Transnet National Ports Authority had to temporarily suspend operations at the Port of Durban for a few days after the roads around it were damaged by the floods, impacting access to
harbour terminals. Maluleke said while normal harbour operations resumed after a few days, export deliveries would remain strained for some time due to significant backlogs and limited availability of vessel space. “It remains to be seen whether the drop in exports was due to the temporary Durban harbour closure and other logistical constraints related to the floods, or whether this is due to a deterioration in external demand,” he said.
However, the index measuring expectations of business conditions in six months’ time held up well, increasing slightly to 55.7 points in April from 55.1 points in March.
Investec economist Lara Hodes, however, said further rotational load shedding in April would also have hindered production and remained a key risk going forward as Eskom has warned of prolonged power cuts during the winter season due to its lack of generation capacity.