Picture: SUPPLIED
Picture: SUPPLIED

Activity in the manufacturing sector picked up for the first time in three months as load-shedding abated in April.

The seasonally adjusted Absa purchasing managers’ index (PMI) rose by 2.2 points to reach 47.2 index points in April. The index gauges activity in the manufacturing sector which accounts for about 13% of GDP.

Despite the increase, the PMI remains below the 50-point mark, which indicates a contraction. This is in line with the average recorded in the first quarter of 2019 indicating that activity remained at a fairly depressed level at the start of the second quarter.

“The lack of load-shedding during the month may have supported the slight improvement in sentiment,” Absa said in a statement on Thursday.

The purchasing price index declined slightly compared to March. The deceleration in cost increases may have been supported by the slightly stronger rand exchange rate. Brent crude oil prices, however, rose during the month. Fortunately, the rise in international diesel prices was countered by the stronger rand, which means that the local diesel price remains unchanged in May.

Activity in the manufacturing sector has picked up for the first time in 3 months. Absa economist Miyelani Maluleke joins Business Day TV to discuss whether this improvement can be sustained.

The major sub-components of the PMI showed a mixed picture. Two of the indices improved compared to March, while three declined.

Only the index tracking suppliers’ performance came in above the neutral 50-point mark at 53.4 points in April. However, the business activity and new sales orders indices recorded notable increases in April, but remained below 50.

The employment index fell to 41.9, which is 4.5 points below the average recorded during the first quarter, while respondents turned slightly more optimistic about business conditions in six months’ time, with the sub-index lifting to 62.3.

While the monthly survey tends to be a good predictor of the manufacturing production and sales figures Stats SA provides two months later, it has been volatile in recent months.

“Prospects for the sector remain tenuous in view of the risks of continued electricity supply shortages over the course of the year,” Investec economist Kamilla Kaplan said.

The sector also faces headwinds from subdued demand conditions with global indicators pointing to subdued activity.

Eskom COO Jan Oberholzer said on Monday that any load-shedding over the next six months to a year would only be as a “last resort”. “As we continue to perform essential plant maintenance, while carefully balancing the country’s energy requirements with the available capacity, the risk that we might implement load-shedding over the next six to 12 months remains. However, this will only be done as a last resort.” 

menons@businesslive.co.za