MANUFACTURING and services’ industrial output edged down in June amid fresh concerns over rising Covid-19 cases and tighter lockdown restrictions.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released yesterday showed a slow down for the third consecutive month to 57.4 index points in June from 57.8 points in May.
Absa said although all five of the headline index’s major subcomponents were above the neutral 50-point mark, both business activity and new sales orders increased at a slower pace.
It said that another expansion was likely in the third quarter as the sectors’ output recovery had been maintained in the second quarter.
A significant annual expansion was effectively guaranteed given the extremely low base set in the second quarter of 2020, Absa said.
Absa senior economist Miyelani Maluleke warned that the ramping-up of Covid-19 restrictions in a bid to curb infections during the third wave could hamper economic growth, especially if sustained for longer than the initial two-week period.
South Africa returned to an adjusted level 4 lockdown on Monday following a move from level 2 to level 3 during the month, straining hospitality, tourism and alcohol industries.
Maluleke said purchasing managers’ assessment of expected business conditions turned less positive in June amid concerns about the magnitude of the pandemic’s third wave.
“The move to adjusted alert level 4 lockdown restrictions at the end of June could stall the broader economy’s quarterly growth momentum at the start of the third quarter,” Maluleke said.
“This could result in a possible slowdown in the demand for selected manufactured goods, and thus production.”
The index tracking expected business conditions in six months’ time declined for a second month to 59.3 points, signalling an anticipated improvement in business conditions, just less so than before.
Absa said the move to level 4 was likely to have soured expectations further, specifically for those businesses with close ties to the hospitality industry.
On the positive side, however, the outlook for manufacturers targeting the European and US export markets remained bright, with recent international PMI readings remaining at or near record-high levels.
The employment index also moved above the neutral 50-point mark.
Absa said even if this means that job losses in the sector had now stopped, the factory sector had a long way to go to regain its level of employment prior to the Covid-19 outbreak.
Recent data showed that the number of employed people fell by 9 000 to 9.644 million in the first quarter, marking the fourth consecutive month below 10 million and the lowest level since 2016.
Alexander Forbes chief economist Isaah Mhlanga said they expected the labour market to remain subdued and household incomes constrained in the medium term as the country battles the effects of the Covid-19 pandemic.
Mhlanga said it was difficult to project when the labour market would return to full capacity as the pandemic was still prevalent and the local vaccine roll-out slow.
“Slow economic growth will continue to strain domestic demand and subsequently put pressure on the growth of employment levels,” Mhlanga said.
“As such our view is that households will continue to face headwinds over the medium term considering the expiration of the government’s expanded social grant payments.”
BUSINESS REPORT