Despite the manufacturing picture improving last month, purchasing managers’ outlook deteriorated to the lowest in two years as load shedding dented sentiment.
“This is the most pessimistic purchasing managers have been about the outlook since May 2020,” said Absa as it yesterday released the Absa Purchasing Managers’ Index (PMI), which rose from 48.2 index points in September to 50 in October.
Lara Hodes, an economist at Investec, noted that the PMI had picked up slightly in October “just creeping back into expansionary territory with a reading of 50” and this was ahead of consensus expectations of Bloomberg.
Absa said the Transnet strike and faltering global demand likely hurt exports, while persistent load-shedding capped the recovery in activity and demand, and that the index level was slightly better than the average during the previous quarter (49.6).
While intensity of load-shedding was less severe compared to September, the business activity index did improve from the previous month. At 48.8 points, it still indicated weak output, but this was the best reading since March 2022.
“Worryingly, the employment index moved against the improvement in activity and tumbled lower in October. At 41.5 points, the index signals the fastest pace of job shedding in two years,” Absa said.
The new sales orders index bounced back in October, but remained stuck in negative terrain for a fifth consecutive month, the index showed as some manufacturers said that in addition to curtailing their production, load shedding was also hurting demand for their products.
Additionally, the PMI’s new sales orders’ sub-index rose by 6.6 points to 46.4 but remained in negative territory for the fifth month in a row, “signalling weak underlying demand”.
Export activity was heavily impacted by the Transnet strike, which commenced on October 6, compelling Transnet Port Terminals to declare a force majeure.
Additionally, the weakening global growth situation continues to impede export potential. The flash PMI for the Eurozone suggests that the “economy slipped into a steeper downturn at the start of the fourth quarter”.
Exports remained poor amid the paralysing Transnet strike, which started on October 6, compelling Transnet Port Terminals to declare a force majeure. However, this week Transent declared the force majeure was over.
Global demand was faltering, Absa said. The PMI readings from Europe, an important South African trading partner, pointed to a sharp slowdown in activity at the start of the fourth quarter.
“Indeed, worries about the strength of global growth going forward may help to explain the down tick in the expected business conditions index,” the index showed. The index tracking business conditions in six months slipped to 49.2.
“This is the most pessimistic purchasing managers have been about the outlook since May 2020. The persistence of load shedding and little hope that this will be alleviated over the near term likely also weighed on sentiment,” Absa said.
BUSINESS REPORT