Manufacturing activity likely to remain depressed for longer
The BER said that the business activity and new sales orders indices both continued to indicate declining activity and demand, albeit at a slower rate than before. Picture Henk Kruger, Independent Newspapers.
Manufacturing activity in South Africa could remain depressed for longer after sentiment plunged to its 10th consecutive month of decline amidst deteriorating business conditions.
The Absa Purchasing Managers’ Index (PMI) rose to 48.2 in November, up from 45.3 in October, but still marking the 10th consecutive month of contraction in factory activity.
This was the first increase following two months of a decline in the headline index, although the index failed to return to positive terrain above the 50-points mark which separates contraction from expansion.
The PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa.
The monthly surveys are conducted under a representative group of purchasing managers in the South African manufacturing sector.
The BER said that the business activity and new sales orders indices both continued to indicate declining activity and demand, albeit at a slower rate than before.
The business index rose by 5.7 points, from 40.3 to 46 points, but still stuck in contractionary terrain for a 10th straight month.
While demand improved somewhat in November, the BER said the ramp-up in the intensity of load shedding towards the end of the month may have curtailed activity growth.
However, an encouraging development was the solid improvement of 6.9 points in the new sales orders index, from 39.7 to 46.6 points in November.
BER senior economist Lisette IJssel de Schepper said the new sales orders index rose to the best level since early this year following a few months of signalling very depressed underlying demand, but it still pointed to weakening demand though the rate of the decline has slowed.
“While these solid improvements are encouraging developments and point to some recovery in underlying demand filtering through to better activity, there are some worrying signs in the survey results,” de Schepper said.
“These include the fact that higher activity did not filter through to the employment index, which remained largely unchanged at a low 41.1 index points in November.
“Another concern is that the congestion at South Africa’s ports is seemingly resulting in a slower delivery of supplies. Respondents note that the unavailability of inputs required could hurt production abilities and push up costs.
“Exports were also under pressure. Worryingly, it seems like it will take at least a few months for the disruptions at the harbours to clear up, which means that this could have a lingering negative impact on the sector.”
The expected business conditions index declined further in November and is now at its weakest level since the strictest months of South Africa’s COVID-19 lockdown in 2020.
Following a significant 12.2-point decline in October, the index lost a further 2.4 points to reach 41 in November.
The BER said this meant that purchasing managers expected business conditions to deteriorate in six months.
Beyond issues with logistics, the BER said the recent ramp-up in the intensity of load shedding, following some weeks of respite, may also have depressed forward-looking sentiment.
Investec economist Lara Hodes concurred that the PMI outcome was still indicative of a subdued manufacturing sector grappling with a number of challenges, notwithstanding November’s modest improvement.
Hodes said a ramp up in production for Black Friday and the festive period likely contributed to the notable rise, but worryingly was the slower delivery of supplies as a result of the congestion at South Africa’s ports.
“Export activity was also lacklustre during the month. The significant logistical constraints, coupled with the subdued state of the global manufacturing sector continue to weigh on export potential,” Hodes said.
“According to results from the latest HCOB Eurozone Manufacturing PMI, released today, the region’s manufacturing sector remained mired in a downturn during November.”
Original article: https://www.iol.co.za/business-report/economy/manufacturing-activity-likely-to-remain-depressed-for-longer-98417913-277b-423e-9348-f756c035e363