Sentiment in the manufacturing industry in South Africa fell into contractionary territory in November, dipping below the 50-mark threshold in spite of Eskom having kept the lights on for more than 200 days.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released yesterday fell by 4.5 points to 48.1 in November, down from 52.6 in October, signalling a loss of recovery momentum observed over the previous two months.
The latest reading signalled a renewed contraction in the country’s factory activity, with both the business activity and new sales orders sub-indices declining after the expansions observed in September and October.
Absa’s Corporate and Investment Banking chief economist, Miyelani Maluleke, said while this decline reflected the ongoing challenges faced by the manufacturing sector, fluctuations in the PMI throughout the year suggested this outcome was not entirely unexpected.
Maluleke said while inflation and interest rates have come down relative to earlier in the year, demand remained unpredictable.
“The November PMI results reflect the challenges facing South Africa’s manufacturing sector as volatile demand and cost pressures weigh on activity. While global demand offers some support, a weaker rand and domestic uncertainties continue to pose risks,” Maluleke said.
“Despite more certainty on the local political front relative to the first half of the year, the global political outlook has become more complicated with concerns about global growth and trade dynamics following the election of Donald Trump as US president earlier in November.”
According to the PMI, a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa, the business activity index dropped by 6.6 points to 49, marking a contraction in production levels.
New sales orders decreased sharply to 45.9 from 54.8 in October, with respondents noting continued pressure on local demand despite some positive developments for consumers.
The supplier deliveries index remained stable compared to October but stayed below 50. Absa said this could reflect a combination of declining orders and improved logistical efficiency, such as easing port issues, but further analysis was needed.
The index measuring expected business conditions in six months remained steady at 62.3, highlighting manufacturers’ continued confidence despite uncertain global and local economic conditions.
“At 48.1, the latest reading is no cause for alarm, but it implies that the ongoing improvement in business conditions is fragile,” said Jacques Nel, head of macro at Oxford Economics Africa.
As a result of the PMI falling into contraction, Investec economist Lara Hodes said only a modest economic growth was expected in the third quarter of 2024 as Statistics South Africa releases the gross domestic production (GDP) figures today.
“Q3.24’s GDP reading is forecast at 0.5% quarter-on-quarter seasonally adjusted and 1.3% y/y. The more favourable electricity supply environment, coupled with the pick-up in sentiment following the formation of the Government of National Unity has boosted activity,” Hodes said.
“However, there are still a number of structural issues, notably on the logistics front impeding optimal production. Our full year forecast is still estimated at 1.0% y/y, after last year’s outcome of 0.7% y/y, with 2025 forecast at a faster pace of 1.7% y/y.”
BUSINESS REPORT