Increasing concern about the effects of lockdown
BUSINESS sentiment turned negative in May marking the first prolonged subdued outlook as firms became increasingly concerned about the extended coronavirus lockdown.
The Markit’s Purchasing Managers’ Index (PMI) yesterday showed that private sector activity fell for the 13th month in a row to reach a record.
The PMI fell to 32.5 points from 35.1 points in April, way below the 50point threshold that separates growth and contraction.
Markit said the PMI indicated an unprecedented collapse in business conditions as output and new sales collapsed during lockdown measures which were extended in the month.
Markit economist David Owen said business activity tracked the crash of the economy into unprecedented gross domestic product levels during the second quarter.
Owen said the relaxation of lockdown regulations this month could see a strong rebound in the PMI if businesses were able to restart quickly.
“Most notably from the latest survey results, business sentiment regarding the 12-month outlook for activity turned negative for the first time in the series,” Owen said. “As such, firms are increasingly concerned that the extended lockdown period may hurt business activity for some time.”
Manufacturing output for March and April are scheduled for release next week after lockdown measures disrupted data collection.
Markit said the PMI also recorded a drop in employment, leading to a second consecutive fall in staff costs during May, one that was much quicker than the one seen in April.
The group said all sub-components fell to record lows in May.
This week, Absa said its manufacturing PMI recovered last month on the easing of the lockdown regulations.
Investec economist Lara Hodes said the manufacturing sector became one of the biggest casualties of Covid-19.
Hodes said indications were that the economy would contract 10.1 percent year-on-year in 2020, with formal unemployment at 35 percent for this year. She said that unemployment, a lagging indicator, was a big concern going forward.
“Low demand levels and generally decreased production manifested in excess capacity and a consequent continued reduction of workforce numbers, as well as in new purchasing orders,” Hodes said.
“Sentiment among manufacturers regarding the outlook over the next six months remained pessimistic. This is likely linked to elevated levels of uncertainty regarding the recovery prospects in production and demand.”