Picture: Ayanda Ndamane/African News Agency (ANA)
Picture: Ayanda Ndamane/African News Agency (ANA)

Steepest PMI decline after Eskom’s rolling power cuts

By Kabelo Khumalo Time of article published Mar 4, 2019

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JOHANNESBURG - The economic consequences of Eskom's blackouts were laid bare on Friday with the Absa manufacturing purchasing managers index (PMI) February reading showing the steepest contraction in manufacturing activity since October. The PMI fell sharply from 49.9points in January to 46.2points last month. The decline was attributed to rolling power cuts that hurt sentiment in the manufacturing sector in the month.

The fall in the index was particularly amplified by the plunge in the new orders index, which plummeted from 49.8 points to a five-month low of 42.3 points. Capital Economics economist John Ashbourne said the poor reading had been widely blamed on the return of power cuts during the month.

“Eskom was forced to impose cuts in February after shut-downs at several key generators. We've always argued that the economic pain caused by so-called load shedding is pretty small, though it does disproportionately fall on energy-intensive sectors like manufacturing,” Ashbourne said.

The power utility last month struggled to keep the lights on - at one stage the utility withheld 4000 megawatts of demand off the national grid.

Eskom’s request for it to be granted a tariff increase of more than 45percent over the next three years was also expected to add pressure on the manufacturing industry. The government last week announced plans to establish a technical operations and maintenance review team for Eskom in its latest attempt to resurrect the embattled utility, whose debt was the main driver of the wider deficit targets announced in the Budget.

Investec economist Kamilla Kaplan said that amid the challenging demand conditions and electricity supply shortages, it would appear that growth in the manufacturing sector would be restricted in the coming months.

“Underpinning most of the decline were accelerated falls in two categories, production and new orders, on a weakening in both domestic and foreign demand. The implementation of rotational electricity load-shedding in the month of February likely also adversely affected output,” Kaplan said.

The PMI’s measure for employment was muted in the month under review, declining from 48.3points in the previous month to 48.1points. Statistics South Africa last month said the mining and manufacturing industries, which are among the country's largest consumers of electricity, added a combined 79000 jobs in the fourth quarter.

Steel and Engineering Industries Federation of Southern Africa economist Marique Kruger said the data highlighted challenges facing the manufacturing sector, including its metals and engineering cluster of industries.

“It is more disappointing to note that the deterioration in the headline PMI was underpinned by sharp decreases in the new sales orders and business activity sub-indices,” Kruger said.


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