South African business activity and new sales orders are in decline
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JOHANNESBURG - Eskom's power cuts last month dampened the country’s manufacturing sentiment to the lowest in a decade, with the Absa Purchasing Managers’ Index (PMI) falling as business activity and new sales orders declined.
The seasonally adjusted index declined for a fourth consecutive month, to reach 44.3points in February from 45.2points in January.
A value above 50points indicates increased activity, and a value below 50points indicates decreased activity.
The index is compiled by the Bureau for Economic Research (BER) and sponsored by Absa.
The BER said the decline brought the index to the lowest level since the second half of 2009, when the economy started to recover from a deep recession triggered by the global financial crisis.
While four points below the average reading in 2019, the current level was still about six points above the lowest point reached in 2009.
BER said business activity and new sales orders declined sharply in February, by 10.9 and 11.3 index points respectively.
The BER said these sub-indices dropped to their lowest levels since 2009 on weak domestic and external demand conditions.
It said the effect was exacerbated by electricity supply disruptions during the month as Eskom continued to implement Stage 2 load shedding.
Seasonally adjusted manufacturing production had already decreased by 2.8percent in December following a 1.8decline in November and a 2.9percent contraction in October.
Investec economist Kamilla Kaplan said the February PMI signalled a further deterioration in operating conditions.
Kaplan said many global manufacturers reported an intensification in supply chain disruptions during the period related to the factory shut downs in China amid the coronavirus outbreak.
“Meaningful delays in shipments of inputs and intermediate products will undoubtedly constrain output in numerous countries in the coming months,” Kaplan said.
“A deterioration in the external environment would compound domestic challenges already experienced by South Africa’s manufacturing sector such as persistently subdued domestic demand, weak electricity infrastructure and elevated operating costs particularly on the administered front.”
BER said the best-performing sub-index was the supplier’s performance sub-index, which improved to 58.6points in February, from 50.8points in January.
The worst-performing sub-index was the new sales orders sub-index, registering 31.2points in February, from 42.5points in January.
Marique Kruger, economist at the Steel and Engineering Industries Federation of Southern Africa, said the headline PMI and its five sub-indices play an important role in business decision-making processes, and the uninspiring performance was worrisome.
“Specifically, it is disconcerting to note that the majority of the sub-indices deteriorated in February, when compared to January, with the potential for the worrisome trend to continue,” Kruger said. “Evidently, there is still a long way to go in restoring business confidence.”