Picture: SUPPLIED
Picture: SUPPLIED

An index measuring manufacturing sentiment jumped to a 13-year high in August after further easing of coronavirus restrictions supported domestic demand and exports.

Absa's Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research, surged to 57.3 to from 51.2 in July, the lender said on Tuesday in a statement. The median estimate of six economists in a Bloomberg survey was 50.9.

The reading is at the highest level since March 2007 and marks the first time since 2016 that the index has spent four straight months above 50, which signals expansion. However, it probably overstates the extent of the recovery in a sector that was almost completely shut in April and factory output is unlikely to have returned to pre-virus levels.

Given the record drop in output in April, continued restrictions on the sector and social-distancing requirements that are preventing factories from operating at full capacity, it will take months until activity returns to pre-lockdown levels, Absa said. The index has flitted between expansion and contraction for most of the past decade as power shortages and low business confidence weighed on a sector that accounts for about 13% of GDP.

Restrictions initially shuttered almost all activity, including the manufacturing sector from March 27, before a gradual and phased reopening of the economy started in May. While restrictions were eased to level 2  in mid-August, many companies had closed down permanently or fired workers during the lockdown.

While the employment subindex ticked up to 39 from 33, the large gap between it and the gauges that measure activity and demand suggest that manufacturers are still shedding jobs, albeit at a slower pace, Absa said.

The business activity subindex of the PMI rose to 67 from 62.9 and the new sales orders subindex increased to 71.1 from 53.4. The index tracking expected business conditions in six months’ time rose to an 18-month high of 63.4 as purchasing managers turned “notably more optimistic” about future conditions, the lender said.

Bloomberg

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.