Manufacturing activity in South Africa ended 2023 on a positive note as it rose for the first time in eight months in December on the back of less rotational power cuts after Eskom suspended load shedding during the festive season.
The Absa Purchasing Managers’ Index (PMI), which was released today (MON), closed the year on a somewhat stronger footing and rose by 2.7 points to 50.9 index points in December, rising above the 50-marks points that separates expansion from contraction for the first time since April.
Absa said part of the uptick came from an encouraging increase in business activity as businesses operating through the festive period may have benefitted from relatively less load shedding in December.
Given that new sales orders did not improve further after a solid increase in November, Absa said the underlying demand for manufactured goods remained relatively weak in December.
"Indeed, time will tell whether the improvement continues into 2024. The business activity index rose to 51.4 in December, up from 46 in November, while new sales orders ticked down to 46.3 from 46.6 in November,” Absa said. “The employment index also remained stuck well below 50 points at 44.8. Worryingly, the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further.
The unavailability of inputs required could hurt production abilities and push up costs going forward.”
Amidst this, Absa said it was somewhat surprising to see respondents turn notably more optimistic about business conditions over the longer term.
The index tracking expected business conditions in six months’ time rose by 16.9 points to 57.9, the best level since the 63.8 index points reached in January 2023.
“It could reflect some hope that the worst of the local rail and port challenges will be behind us by mid-2024 and that load-shedding could be less intense than last winter,” Absa said. “More subdued inflation and lower borrowing costs (domestically and globally) could also help on the cost front and spur demand. Still, the magnitude of the increase is significant.”
Regarding the current level of the index, Absa said it was perhaps useful to flag that the index remained below its long-term average, so while purchasing managers are notably more optimistic than through most of 2023, they were still not excessively upbeat.
Finally, the purchasing price index remained at a low level in December and ticked up only slightly to 62.1 from 61.5 in November.
BUSINESS REPORT