Business conditions in manufacturing remain subdued in the next six months
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BUSINESS conditions in the manufacturing industry could remain subdued in the next six months in spite of the expected rebound of industrial activity in the fourth quarter of 2021.
The Absa Purchasing Managers Index (PMI) released yesterday recorded a solid increase in November, rising to a five-month high following weak conditions in the third quarter.
The PMI gained 3.6 points to remain in expansionary territory with 57.2 points in November, up from 53.6 in October, and pointing to a faster expansion in manufacturing since June.
Absa said this was the highest level for the headline PMI since before the third wave of Covid-19 infections and the social unrest shock that caused a R50 billion economic fallout in July.
At 55.4 points, the average headline PMI reading for October and November rose notably from the 51.5 recorded in the third quarter.
Absa senior economist Miyelani Maluleke said this boded well for a recovery in actual manufacturing production in the fourth quarter after a very poor third quarter.
Maluleke said both business activity and new sales orders - the two sub-indices most severely impacted by the steel sector strike in October - were also the most improved in November.
He said it was heartening that factory activity and the demand for manufactured goods seemed to be resilient and had posted a brisk recovery in November.
“This is despite sustained load-shedding during the month, which some respondents mentioned as a constraint on activity,” Maluleke said.
“With export sales only up marginally, the new sales orders gain must have been mainly due to improved local demand.”
Further good news was the employment indicator that moved back above the 50-point mark for the first time since before July.
On a less positive note, Absa said purchasing prices moved higher once again in November, with some respondents highlighting the adverse impact of the announcement of a new Covid-19 variant.
The other sour note in the November PMI was a more than 5-point decline for the index measuring expected business conditions.
“While undoubtedly positive, the decline in the expected business conditions index remained the most worrying index as South Africa was moving towards a fourth wave,” Absa said.
Investec economist Lara Hodes also noted that the index measuring expectations with respect to future business conditions lost ground in November.
Hodes said the discovery of a new variant triggered a number of travel bans from key tourist markets, dampening expectations for consumer spending over the seasonally significant festive period.
“While the president has left the country on lockdown level one for now, a sharp spike in cases could see the implementation of further restrictions,” she said.
“High levels of uncertainty continue to weigh on confidence.”
BUSINESS REPORT ONLINE