Sentiment about expected business conditions in the manufacturing industry has plummeted to its lowest in nearly three years dragged down by extensive load shedding which continues to undermine business conditions.
This comes as data released yesterday showed that manufacturing activity has fallen below the neutral 50-point - which separates contractionary from expansion - for the first time since September 2022.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) fell sharply to 48.8 points in February, from a seven-month high of 53.0 points in January.
In contrast, manufacturing activity rebounded to its highest in seven months in China, while it rose to a more than six-year high in Russia and remained robust in expansion though slightly declining in India.
The latest South African PMI reading - conducted by Stellenbosch University's Bureau for Economic Research (BER) - pointed to a marked deterioration in business conditions in the factory sector.
Absa said that declines were observed in all sub-indexes: business activity, new sales orders, employment and inventories.
The business activity and new sales orders indices were both in contractionary terrain, with demand dipping for a second consecutive month.
Specifically, the business activity sub-index shed 10.5 points, sliding back to below 50.0 (neutral level) to December's level after gaining some momentum in January.
The new sales orders index ticked down to its lowest level since October 2022 despite a solid improvement in export sales, pointing to weaker domestic demand.
Export sales rose to the best level in a year, implying that producers supplying solely to the domestic market likely had a tough month.
Absa said the critical electricity supply situation remained a significant impediment to optimal production.
“The February survey period included an unprecedented seven consecutive days of stage 6 load shedding, which was likely top of mind for many respondents,” it said.
“To be sure, load shedding once again featured frequently in the commentary where respondents explained why activity declined relative to the previous month.”
There was more bad news in the form of a sharp decline in the index measuring expected business conditions in six months’ time.
The index fell to 46.8 points in February, which is the lowest level since May 2020.
Absa said this meant that respondents have not been this downbeat about future conditions since the country was slowly moving out of the strictest phase of the Covid lockdown.
The employment and inventories indices also fell into contractionary territory, with the former now firmly back below the neutral 50-point mark following an unexpected rise above this level in December.
Furthermore, the purchasing price index surged higher for a second month to reach the highest level since September 2022.
The survey took place while the rand against the dollar was very weak, largely trading above R18/$. This would have filtered through to the costs of especially imported raw materials and intermediate goods.
“The surge in the PMI’s price index suggests that we may see a renewed acceleration in factory-gate prices. That said, the index remains well below the peak reached in the first months of 2022,” Absa said.
The ongoing energy crisis, which is expected to worsen to yet another record level this year, has already seen South Africa’s growth forecasts slashed below 1% for 2023.
Additionally, the economy is struggling to create jobs meaningfully to deal with the world’s highest official unemployment rate of 32.7% in spite of 169 000 jobs being created in the last three months of 2022.
Investec economist Lara Hodes said sentiment in the country has been weighed down by a number of headwinds which required urgent economic reforms to be implemented.
“The recent greylisting announcement, together with the electricity crisis (among other challenges) has weighed heavily on sentiment,” Hodes said.
“Rapid, urgent implementation of outlined reforms is needed to lift confidence and accordingly encourage investment and growth.”
BUSINESS REPORT