Big hit for manufacturing in South Africa – BusinessTech

Sentiment in South Africa’s manufacturing sector is negative amid extreme volatility.

The adjusted Absa Purchasing Managers’ Index (PMI) declined back to contractionary territory,
decreasing by 8.8 points from 52.4 in July to 43.6 in August 2024.

“This is the fifth month out of the eight months of 2024 that the reading has edged into contractionary territory,” said the Bureau for Economic Research (BER).

“This reflects high volatility in the sector in a year of political uncertainty, high but slowing inflation, elevated borrowing costs, and sluggish global and domestic demand, which has not been strong enough to fuel a sustained rebound in production.”

The business activity index decreased by 11.9 points to 38.9 in August, while the new sales orders also dropped by over 20 points to 34.6.

“This follows a significant improvement in July when some sales orders that had been on hold due to political uncertainty started to come through,” said Absa.

“However, demand did not expand at the same pace in August. It is important to remember that the index measures month-on-month activity, so the downtick signals a decline relative to what seems to have been a strong July.”

Many respondents flagged weaker sales and orders locally.

Export sales were also negative in August due to supply chain issues, weak European activity and slower-than-expected growth in China.

The index measuring supplier performance declined by 4.5 points. However, this shows an improvement as this index is inversed.

This could be due to a decrease in new orders as suppliers are under less pressure to meed demand.

That said, there are concerns over job creation and safety, with the employment index declining for a second straight month. Due to volatile activity in the sector, the index has been in contractionary territory since March.

The purchasing price index did not see any significant changes, highlighting the market consensus and recent inflation data release that inflation has already peaked.

The reading of 63.3 was the second lowest over the year. Fuel prices declined due to stable oil prices, the relatively stronger rand, and more cuts coming in September.

The latest data from the Central Energy Fund (CEF) showed that fuel prices will fall for the fourth straight week. Petrol prices will drop by 92 cents per litre, while diesel prices will decrease by between 79 and 105 cents per litre.

That said, the index tracking expected business conditions in six months decreased from 69.4 points in July to 61.3 points in August.

Despite the decline in the future-looking index, it remains high and signals an improvement in business conditions in the future.

Read: What the new two-pot pension system means for interest rates in South Africa