The seasonally adjusted Absa Purchasing Managers’ Index (PMI) started the year on the back foot and declined further in January, decreasing by 1.9 points to 45.2, the lowest level since September 2019.
The performance of the five major subcomponents was mixed, Absa said on Monday, noting that two indices had recovered somewhat from multiyear lows reached in the previous month, while the three other indices declined in January.
The business activity and new sales orders indices both increased somewhat after recording sharp declines in December 2019. However, coming off a low base, Absa said both indices remained at relatively weak levels.
“This suggests that sustained weak demand is weighing on activity growth,” said Absa economist Miyelani Maluleke.
In addition, the index tracking the backlog of sales orders fell to a more than ten-year low in January, which Absa said, “does not bode well for a recovery in activity growth going forward”, considering that it is another sign of soft demand.
This is further highlighted through South Africa’s manufacturing sector, which, according to financial services provider Investec, continued to signal a deterioration in operating conditions, with the PMI gauge declining to 45.2 index points from 47.1 in December 2019.
According to Investec, this was mainly underpinned by deepening rates of contraction in the backlog of sales orders and employment that dropped to ten- and six-year lowers, respectively.
Further, amid weak domestic and external demand, the new sales orders subindex remained entrenched in contractionary territory in January, although the pace of decline abated somewhat.
In January, manufacturers also experienced increased cost pressures, which Investec said “is likely linked to higher fuel prices”.
However, Investec said that there is some indication that the downturn in global manufacturing may have stabilised with scope for an improvement into 2020, barring a severe global growth and trade fallout from the coronavirus.
Purchasing inventories erased December’s gain and slumped back to 43.9 index points.
The only subcomponent to come in above the neutral 50-point mark was supplier deliveries, though only just at 50.8 points, which Absa noted “was sharply down” from the 56 points recorded last month.
“Worryingly, even as current conditions deteriorated further, respondents still turned more pessimistic about the business environment going forward,” said Maluleke.
The index tracking expected business conditions in six months’ time slumped to the lowest level in more than a year.
Uncertainty about the frequency and severity of load-shedding in future and the strength of the global economy, and therefore external demand, likely dimmed prospects for the future, Absa noted.
Business activity also contracted at a slower rate, which Investec said could be attributable to a rebound effect from the electricity supply disruptions in December that affected production.
Should the external environment turn more favourable over the course of the year, a recovery in South Africa’s manufacturing sector will still be hindered by subdued domestic demand, weak electricity infrastructure and elevated operating costs, particularly on the administered front.