Inventories index at highest level in 13 years as demand improves
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JOHANNESBURG – The inventories index rose to its highest level in 13 years, boosting business activity in South Africa above pre-Covid-19 levels in October on improved demand following the further easing of the lockdown restrictions in September.
The Absa Purchasing Managers’ Index (PMI) released yesterday rose to a solid 60.9 points in October from a revised 58.5 points in September.
The PMI, an economic activity index based on a survey conducted by the Bureau for Economic Research and sponsored by Absa, remained well above the 50-point mark that separates expansion from contraction.
The reading pointed to the third consecutive month of expansion in factory activity and the quickest pace on record as business activity, new sales and inventories increased.
Absa said a big driver of the increase was the inventories index.
It said some respondent comments suggested that demand and capacity were nearing normal levels as lockdown restrictions were eased further to level 1. Other respondents, however, reported that they continued to struggle as demand for their products remained well below pre-lockdown levels.
Absa said the further increase at the start of the fourth quarter was an encouraging sign that the manufacturing sector continued to recover following a record contraction in April.
The employment index rose for a fifth consecutive month, reaching 49.1 points, suggesting that employment levels were stabilising after significant job losses in the second and third quarters of the year.
The purchasing price index somewhat surprisingly ticked up in October despite the rand exchange rate and Brent crude oil price remaining more or less unchanged compared with September.
Sentiment regarding the outlook for the next six months remained optimistic but less so than during the third quarter.
Absa said renewed restrictions on activity in Europe amid a resurgence of Covid-19 cases might weigh on future demand for South African exports.
South Africa’s largest European trading partners, Germany and the UK, have reintroduced containment measures following the surge of the second wave of Covid-19 infections.
Absa said this may stir up concerns about a possible second wave in South Africa with a possible move back to a stricter lockdown level.
Investec’s Kamilla Kaplan said this could be linked to the surge in Covid-19 cases in Europe and the associated partial lockdowns.
“With Europe a key export destination for South Africa, this could dampen the outlook for South Africa’s manufacturing goods exports.”
This could explain why the index tracking expected business conditions in six months’ time moved slightly lower in October.
The index declined to 56.7 points from a recent high of 64.5 points reached in September.