Picture: SUPPLIED
Picture: SUPPLIED

Business conditions in the manufacturing sector fell for the fourth month in a row, reaching their lowest levels since 2009, when SA was grappling with the after effects of the global financial crisis.

The Absa purchasing managers’ index (PMI), hit 44.3 index points in February, its lowest level since August 2009, according to data from the bank on Monday. The decline was broad-based with four of the PMI's subcomponents falling.

The reading comes as SA battles with the threat of ongoing power cuts by cash-strapped Eskom, and as global markets are reeling over worries about the spread of the coronavirus and its likely effects on global growth.

Business Day TV spoke to Miyelani Maluleke, senior economist at Absa, about the latest PMI print and what it means for SA.

China, the epicentre of the coronavirus outbreak, has already seen its own manufacturing data taking a knock, raising concerns about the ripple effects for the rest of globe.

The PMI subcomponents tracking business activity and new sales orders, deteriorated sharply to both reach an almost 11-year lows, according to Absa.

Some respondents flagged load-shedding as a reason for the decline in activity, it said, while weakness in external demand also seemed to have contributed to the drop in sales orders.

The index tracking expected business conditions in six months’ time, fell to its lowest level since 2009, according to Absa, which is likely to have been driven by the threat of continued load-shedding in the coming 18 months.

“Continued concerns regarding the strength of the global economy likely also contributed to the souring in sentiment as respondents noted a decline in export sales for a fourth consecutive month,” the bank said in a statement.

The ABSA PMI — released in conjunction with Stellenbosch University’s Bureau for Economic Research — is a monthly gauge of business conditions in the manufacturing sector. A reading below 50 points indicates a contraction in activity, while a reading above 50 indicates expansion in the sector.

Manufacturing accounts for about 14% of SA’s GDP.

The local PMI data follows China’s release of its own PMI for both its manufacturing and nonmanufacturing sectors, which plummeted, raising concern about further disruption to global supply chains and a slowdown in global trade.

China’s manufacturing index plunged from 50 index points to 35.7, while the nonmanufacturing index crashed from 54.1 index points to 29.6, both due to coronavirus, according to a note from Kevin Lings, chief economist at Stanlib.

“The latest fall-off in the manufacturing as well as services PMI is the largest decline ever recorded and consistent with a severe recession,” he said.

“It would appear that China’s economic data is going to get a lot worse over the coming weeks,” said Lings.

According to Investec economist Kamilla Kaplan, many global manufacturers reported an intensification of supply chain disruptions in February due to factory shutdowns in China thanks to the virus.

“Meaningful delays in shipments of inputs and intermediate products will undoubtedly constrain output in numerous countries in the coming months,” Kaplan said.

A deterioration in the external environment would compound domestic challenges already facing SA manufacturers including weak local demand, ailing electricity infrastructure and rising operating costs — particularly on the part of administered prices she noted.

Lings said, however, that once the extremely low base of economic activity is reflected in China's data, the pace of recovery “could be very impressive”, assuming the other major economies have managed to control the spread of the virus in their countries.   

According to the World Health Organisation, 62 countries have confirmed cases of the virus, with a total of 88,913 cases worldwide, and a death toll of 3,043.

Donnellyl@businesslive.co.za

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