Independent Online

Wednesday, August 10, 2022

Like us on FacebookFollow us on TwitterView weather by locationView market indicators

Manufacturing in SA facing worrying deterioration as factory activity grows at slower pace in June

Absa also warned that along with the stark decline in actual factory output in April, the sector was likely to be a big drag on economic growth in the second quarter. File photo

Absa also warned that along with the stark decline in actual factory output in April, the sector was likely to be a big drag on economic growth in the second quarter. File photo

Published Jul 4, 2022

Share

Manufacturing production in South Africa is facing a worrying deterioration, with factory activity growing at a slower pace in June due to waning demand and activity during the month.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 52.2 index points in June, from 54.8 in May, as the new sales orders index moved back into negative terrain.

Story continues below Advertisement

The latest reading pointed to the 11th consecutive month of expansion in manufacturing activity, but at a weaker pace, amid a deterioration in demand and activity during the month.

Absa said that the business activity index at 45 points signalled a contraction in output for a third consecutive month, linked to floods in KwaZulu-Natal in April, continuing supply chain issues and power cuts.

The devastating floods in KZN left at least R17 billion damage to infrastructure, causing disruptions in logistics and economic activity, while Eskom’s scheduled power cuts have also hit manufacturing production.

Data from Statistics South Africa shows how manufacturing output plungedin April by 7.8 percent from a year earlier, following a downwardly revised 0.6 percent decline in March, marking the second consecutive month of falling activity and at the quickest pace since last October.

Absa also warned that along with the stark decline in actual factory output in April, the sector was likely to be a big drag on economic growth in the second quarter.

The new sales orders index moved back into negative terrain in June, falling by a marked 12.2 points following an encouraging recovery in May.

Story continues below Advertisement

Export sales were positive, albeit only just, which means a big drag also came from domestic demand deteriorating.

Purchasing prices also picked-up again in June, weighing heavily on manufacturers’ profitability. A worrying, although not unexpected, development was a decline in the index tracking expected business conditions in six months’ time, which fell to 53.8 points in June, down by almost 10 points from May.

“This is the least optimistic purchasing managers have been this year. The majority of the responses were received before the recent ramping up of the intensity of load shedding,” Absa said.

Story continues below Advertisement

“Even so, along with growing concern about a sharp growth slowdown, and potentially recession, in some of South Africa’s key trading partners, this could have contributed to the depressed sentiment.”

A positive takeaway from the latest survey was from the employment index, which signalled an uptick in staffing levels, with the average of 51 points, suggesting that the sector may continue to add jobs after five consecutive quarters of formal job growth.

However, the supplier delivery index reading at 65.8 points suggested that delivery lead times continue to remain an issue, with a few respondents referring to shortages of raw materials and delays at ports hampering their business.

Story continues below Advertisement

Investec economist Lara Hodes said issues with supply-chains would continue being a bottleneck in manufacturing productivity due to ongoing geopolitical tension, adding to an ongoing domestic energy crisis.

“The persistent conflict between Ukraine and Russia is likely to continue causing supply side challenges,” Hodes said.

“Heightened rotational load shedding – with Eskom escalating the level to stage 6 during certain periods, due in part to unlawful industrial action – remains a key risk to South Africa’s growth trajectory and continues to weigh on business and consumer sentiment.”

[email protected]

BUSINESS REPORT ONLINE

Share