Improvement of SA trade conditions in manufacturing sector is pointing to a rebound, Newsline

JOHANNESBURG – The country’s economy is set for a rebound as trade conditions improve in the manufacturing sector, with expectations that the uptick could go for the medium term.

The industry’s gauge, the Absa Purchasing Managers’ Index (PMI) rose above pre-pandemic levels in September.

Absa said the improved sentiment pointed to the fifth consecutive month of expansion in factory activity boosted by the easing of lockdown restrictions.

It said the sentiment rose further to 58.3 index points from 57.3points in August following the sharp decline in the second quarter.

Absa said the majority of the PMI sub-indices performed well in September, trending comfortably above the neutral level of 50 index points compared to August.

The index tracking expected business conditions in six months’ time ticked up to 64.5 index points from 63.4points in August, and a low of just 27.3 index points in April.

Absa said purchasing managers surveyed in the PMI remained optimistic about business conditions going forward.

It said business activity increased markedly and news sales stayed at an elevated level in September as customer restocking boosted orders, but export sales softened somewhat.

The Absa PMI had been relatively resilient in recent months as manufacturing activity continues to recover off its exceptionally weak base in April.

The latest improvement was driven by the scaling up of operational capacity after South Africa’s move to Level 1 lockdown restrictions mid-September following a significant decrease in daily Covid-19 cases.

However, the overall improvements in business conditions failed to prevent further job losses in the manufacturing sector as the rise in PMI did not directly translate to official manufacturing activity being back to pre-pandemic levels.

Investec’s Kamilla Kaplan said the September PMI signalled a sustained monthly improvement in manufacturing business conditions, in a continued recovery from the second quarter.

“During the month, demand continued to improve, and production expanded albeit both at slower rates than in August,” Kaplan said.

“Indeed, the survey report cautions that the PMI survey measures month to month changes and actual manufacturing production may not register the same magnitude of change.”

Absa said the increase in the business activity component was more pronounced and probably better reflected the pure output dynamics at this stage.

The employment index, however, remained the main drag on the PMI.

Steel and Engineering Industries Federation of Southern Africa chief economist Michael Ade said the trend offered hope and modified expectations for broader manufacturing. He said this could be seen as a preview to enhanced industrial activity.

“There is a need for continuous improvement in business activity, given the challenging operating business environment, amid prevailing low levels of domestic demand and increasing input costs, as a result of a generally weak exchange rate,” he said.