Absa PMI data suggests worst is yet to come for manufacturers
The sector’s expectations of business conditions are the most pessimistic in more than two decades
The worst is yet to come for the manufacturing sector, despite an uptick in business conditions recorded during March, as the economy reels from the 21-day lockdown to slow the spread of the coronavirus.
Business conditions in the manufacturing sector rose in March, according to the latest Absa purchasing managers index (PMI), but the full effect of the three-week shutdown will largely be felt during April, the bank said in a statement on Wednesday.
“The nationwide lockdown imposed towards the end of March meant that most factories lost three working days compared to a normal March, while the 21-day lockdown will result in 10 working days lost in April,” the bank said.
The Absa PMI has registered its worst quarterly performance since 2009. Business Day TV spoke to Miyelani Maluleke, senior economist at Absa. and Nampak CEO Erik Smuts to evaluate Covid-19's impact.
Supply-chain disruptions mean that production is unlikely to return to full capacity immediately after the lockdown lifts, the bank said, suggesting that April’s factory figures are likely to show “a deep contraction”.
The Absa PMI improved to 48.1 index points in March, from February’s 44.3 index points, when the gauge reached more than decade lows. On a quarterly basis, however, the PMI averaged 45.9 index points, its worst quarterly performance since 2009, the bank said.
The monthly increase was largely driven by the supplier deliveries sub-competent, which reflected slower delivery times.
“In normal circumstances, a slowdown in supplier deliveries is seen as positive for the sector as it suggests suppliers are busier,” the bank said.
“However, in this case, the slowdown in delivery times is caused by global supply-chain disruptions.”
Without the “inadvertent” boost from this subindex, the PMI would have been lower in March, it said.
This “statistical quirk” and the fact that the March survey does not include the effects of the lockdown, meant the latest results provided “a misleadingly positive impression”, said John Ashbourne, Capital Economics senior emerging markets Economist, in a note.
“Activity has almost certainly deteriorated further given the current lockdown,” he said.
Other sub-indices that give a greater indication of underlying conditions in the sector, notably the business activity and new sales orders sub-components, continued to hover at 11-year lows, Absa said.
As the SA economy comes to grips with the shutdown, which has stopped all business activity but essential services, the subindex measuring manufactures’ expectations of business conditions in the coming months hit its lowest level since the series began in 1999.
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.
If the lockdown is extended, some factories will close permanently according to the bank.
“This will have a sustained negative effect on production and could also result in further job losses in the sector,” it said.