Manufacturing sector recovery levelled off in December
Absa says the sector's recovery slowed after solid gains were recorded in the wake SA’s hard lockdown earlier in 2020
SA manufacturing activity continued its recovery in December, though momentum slowed, with surge in Covid-19 and load-shedding posing a threat to the sector in early 2021, Absa said on Friday.
The Absa purchasing managers’ index (PMI) — released in conjunction with Stellenbosch University’s Bureau for Economic Research — fell to its lowest level since July in December 2020, though it remained in positive territory.
The PMI, which provides a measure of business conditions in the manufacturing sector, fell to 50.3 index points in December, from 52.6 in November.
Any reading below 50 indicates a contraction in activity, while a reading above 50 indicates expansion. The sub-indices of the PMI are business activity, new orders, employment, supplier deliveries and inventories.
Despite a strong start in October, the average reading for the fourth quarter 2020 is basically unchanged from the third quarter, Absa said, suggesting that while another quarter-on-quarter uptick in manufacturing output is likely, the pace of the recovery momentum has slowed.
Worryingly, the business activity index declined to 44.9 points in December, Absa said, and “strictly speaking this means that manufacturing output declined compared to November”.
After already slumping below the neutral 50-point level in the previous month, new sales orders fell further in December. The index declined to 45.2 in December, compared to an average of 53.7 points for the full fourth quarter and a solid 62.5 average recorded in the third quarter.
“As was the case in November, a deterioration in export orders seems to have contributed to the decline in overall orders,” the statement said.
The employment index was the biggest drag on the headline PMI in December, falling to 43.8 points in December from 47.2 in November. As was the case in the previous few months, the inventories and supplier deliveries indices added positively to the headline figure.
In early 2021, a rampant coronavirus and accompanying renewed lockdown restrictions will likely also negatively affect domestic demand, particularly from the liquor and hospitality sectors, Absa said.
“The return of load-shedding, especially if no longer contained to late evenings, also argues against a strong rebound in January,” the statement said.
The soft headline reading suggests that the manufacturing sector ended 2020 on a very weak note, said Capital Economics Africa economist Virág Fórizs in a note, adding SA's economic outlook has since worsened.
“The recent tightening of virus containment measures, and the slow and limited access to vaccines means that the economic picture will probably get worse, before it gets better,” Fórizs said.
The survey was conducted in mid-December with most responses coming before the government announced the implementation of adjusted level 3 lockdown restrictions on December 29, said Absa economist Miyelani Maluleke in a note.
“While the PMI data suggest the manufacturing sector continued to recover in the fourth quarter of 2020, albeit at a slower rate, the near-term outlook into 2021 has become more uncertain given the recent, sharp escalation of the pandemic and the rising risk of additional lockdown restrictions subsequent to the sampling of the PMI survey,” Maluleke said.
Update: January 8 2020
This article has been updated with additional comment.
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