Confidence in South Africa’s manufacturing industry has dipped to its lowest in 11 months as private sector businesses remain pessimistic due to capacity constraints from load shedding and supply shortages, in spite of an uptick in demand.
The S&P Global Purchasing Managers Index (PMI) yesterday showed that South Africa's private sector activity contracted for the second consecutive month in April, falling short of market estimates of a near-stabilisation.
The PMI posted at 49.6 in April, dropping fractionally from 49.7 in March and below the 50.0 neutral mark which separates contraction from expansion for the second month running.
This reading affirmed Absa’s PMI released earlier in the week, which remained in the contractionary territory at 49.8 points in April, in spite of the rise from an eight-month low of 48.1 points in March.
S&P said businesses signalled that a decline in output was the main driver of the contraction in operating conditions in April.
Activity levels fell solidly and for the seventh time in the past eight months, although the pace of decline was not as strong as in March.
Once again, the downturn was mainly attributed to load shedding and its impact on capacity.
On the flip side, demand conditions picked up in April and led to a rise in new business intakes, and although the upturn was only slight, it nonetheless ended a four-month sequence of decline.
Sales growth was largely down to a solid increase in export orders, as some firms highlighted a rise in customer numbers from abroad.
S&P Global Market Intelligence economist David Owen said South African companies continued to struggle with multiple headwinds on the economy at the start of the second quarter.
Owen said load shedding, input shortages and longer lead times each acted to limit business capacity and drive another solid drop in output.
He said cost concerns meant that purchasing activity and staffing levels were also cut in April.
“These supply-side challenges, which have also underlined rapid increases in input prices over recent months, meant that companies showed little reaction to a more positive demand picture in April,” Owen said.
Data also showed that new business rose for the first time in five months (though only slightly), supported by a solid increase in export sales.
With capacity pressures persisting and input buying falling, the rise in demand mostly led to a pile-up in backlogs of work that was the sharpest since last August.
“The data, therefore, suggests that firms are poorly positioned to respond to a recovery in demand at this time, with heightened costs largely constraining decisions over activity, spending and prices,” Owen said.
“As a result, confidence towards future activity was at an 11-month low in April, having declined in six of the past seven months. The bleaker outlook from Eskom in recent weeks regarding electricity supply adds to signs that business conditions could remain subdued in the near term.”
Meanwhile, business confidence in the year-ahead outlook dropped for the sixth time in the past seven months in April, with worries about high inflation and weak economic conditions continuing to weigh on sentiment.
Nonetheless, S&P said the weaker outlook contributed to a reduction in employment numbers in April, which fell only slightly but at the fastest rate since February 2022. Alongside lower staffing, firms found that load shedding, material shortages and longer lead times led to a renewed increase in backlogs of work.