Businesses in South Africa’s manufacturing sector remain optimistic about trading conditions in the next six months as confidence rose to its highest level in nearly a year, due to hopes of easing logistical and electricity challenges.
This comes as manufacturing activity in South Africa ended 2023 on a positive note, rising for the first time in eight months in December on the back of less rotational power cuts after Eskom suspended load shedding during the festive season.
The Absa Purchasing Managers’ Index (PMI), which was released yesterday, closed the year on a somewhat stronger footing and rose by 2.7 points to 50.9 index points in December after having stayed below the 50-point mark that separates expansion from contraction since April.
The Absa PMI, which is compiled by the Bureau for Economic Research (BER), showed that part of the uptick came from an encouraging increase in business activity as businesses operating through the festive period may have benefited from relatively less load shedding in December.
For the second time in 2023, the business activity index rose above the neutral 50-point mark to 51.4 in December, up from 46 points in November as businesses were helped by less intense load shedding through the festive season.
The index tracking expected business conditions in six months’ time rose by a significant 16.9 points to 57.9 points.
BER senior economist Lisette IJssel de Schepper said this was 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,” IJssel de Schepper said.
“More subdued inflation and lower borrowing costs (domestically and globally) could also help on the cost front and spur demand. Still, the magnitude of the increase is significant.”
Regarding the current level of the index, IJssel de Schepper said it was perhaps useful to flag that the index remained below its long-term average, so while purchasing managers were notably more optimistic than through most of 2023, they were still not excessively upbeat.
“Indeed, time will tell whether the improvement continues into 2024,” she said.
However, new sales orders remained largely unchanged, ticking down to 46.3 points in December from 46.6 in November, in spite of export sales nudging upwards.
Given that new sales orders did not improve further after a solid increase in November, IJssel de Schepper said the underlying demand for manufactured goods remained relatively weak in December.
She said the employment index also rose slightly in December, but did not match the increase in activity and, at the current level, did not point to job growth in the sector.
“The employment index also remained stuck well below 50 points at 44.8. Worryingly, the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further,” IJssel de Schepper said.
“The unavailability of inputs required could hurt production abilities and push up costs going forward.”
Amidst this, IJssel de Schepper said it was somewhat surprising to see respondents turn notably more optimistic about business conditions over the longer term.
Finally, the purchasing price index remained at a low level in December and ticked up only slightly to 62.1 from 61.5 in November.