Absa PMI plunges to a 14-month low but is expected to rebound

INDUSTRIAL activity in the South African manufacturing sector is expected to rebound to a respectable level this month after plunging to a shocking 14-month low in July.

The Absa Purchasing Manufacturers Index (PMI) fell sharply to 43.5 index points in July, from 57.4 points in June, weighed down by the lockdown restrictions and civil unrest.

This PMI reading below 50 index points was down to the lowest level since May 2020.

This was a setback to manufacturing output recovery at the start of the third quarter of 2021.

It also signalled the steepest deterioration in business conditions since the beginning of the lockdown.

Absa said that July was a particularly challenging month, with the broader economy and the manufacturing sector hit by several supply-side and confidence shocks.

This after the government ramped-up lockdown measures to alert level 4 for the better part of July to curb the third wave of Covid-19 driven by the Delta variant.

The alert level 4 lockdown restricted activity in industries such as alcohol, restaurants, hospitality, tourism and events.

In mid-July, civil unrest in KwaZulu-Natal and Gauteng disrupted supply chains, industrial output and the demand for manufactured goods as distribution centres were plundered.

Absa said the sector may also have been negatively impacted by the recent cyberattack on Transnet, which saw operations at major ports grind to a halt temporarily.

Absa economist Miyelani Maluleke said the riots had disrupted supply chains, industrial output and the demand for manufactured goods.

Maluleke said the whole sector was disrupted since the unrest affected two provinces which accounted for about 60 percent of all manufacturing activity in the country.

“The fact that for a brief period of time major routes had to be closed, particularly in KZN, because of the riots would have affected a major part of the manufacturing sector,” Maluleke said.

“But because the big part of the weakness we see in July has been brought under control, we are confident that we should see a bit of a rebound and we are certainly seeing it in manufacturers’ expectations.”

Maluleke said the lifting of some of the level 4 restrictions and calm returning to KZN and Gauteng should lift factory output from August.

“We did the survey during the course of last week when some of these challenges had subsided, so we are seeing manufacturers saying August should be a little bit better than July.”

This was in line with the projections of the PMI respondents as the index measuring expected business conditions in six months rose by 5 points to 64.3 points in July.

Investec economist Kamilla Kaplan said the restrictions and the protest action resulted in supply difficulties that would have affected production at a range of other manufacturers.

“August should see a meaningful recovery in production and demand as the domestic situation has stabilised and the government eased lockdown restrictions,” Kaplan said.

“Indeed, the business expectations sub-index lifted in July on improving expectations of business conditions in six months’ time.”