Managers in the manufacturing industry in South Africa have remained concerned about the expected return of load shedding in the winter months and stubbornly high interest rates, in spite of activity rebounding to a 2-year high in April.
This comes as the seasonally adjusted Absa Purchasing Managers’ Index (PMI) improved sharply into expansionary territory in April, following a dip below the neutral 50-point mark in March.
Absa yesterday said the headline PMI rose to 54 points in April, from 49.2 points in March, signalling a renewed expansion and the strongest activity since March 2022.
The rebound came from improved business activity, buoyed by a full month of no load shedding, while better domestic demand filtered through to higher new sales orders.
The survey, conducted by the Bureau for Economic Research (BER) and sponsored by Absa, reflected a good start to the second quarter of 2024 overall.
Absa’s Corporate and Investment Bank senior economist, Sello Sekele, said the business activity index rose to well above 50 in April, following weak activity in March, and pointed to a strong start to the second quarter on base effects.
Sekele said South Africa experienced no load shedding through April, which would have been positive for economic activity.
Indeed, Eskom has suspended load shedding for more than 35 consecutive days due to sustained generation capacity and sufficient emergency reserves.
However, it warned that the likely scenario from its assumptions was that load shedding will be maintained within Stage 2 at most as it continued to ramp up maintenance of its coal fleet to meet demand.
“The business activity index improved to 57.2 points from 44.5 in March, and new sales orders rose to 55.6 points in April compared to 45.5 in March,” Sekele said.
“Some comments still point to demand remaining sluggish (although the survey outcome suggests it is much better than in March), but more than 30 days of no load shedding has likely supported business conditions in the factory sector.
“In this regard, Eskom has announced that there has been sustained improvement in generation by the coal-fired plants, sufficient emergency reserves, and lower demand for Eskom power. Eskom has, however, cautioned that load-shedding is projected to return in the winter months.”
Though the new sales orders index increased, Absa said comments remained fairly downbeat on demand and suggested buying patterns were sluggish.
Sekele said some remarks suggested that customers were only buying basic necessities, underscoring that the improvement was relative to March and not necessarily relative to long-term conditions.
Absa said the index for expected business conditions in six months declined to 55.7 in April from 62.1 in March, depressed by the expectation of a return of load shedding.
It said there might also be concerns about fewer interest rate cuts in South Africa and elsewhere compared to earlier expectations.
According to the survey, the employment index declined back to February’s level in April due to sluggish sales patterns and no strong demand improvements.
Business expectations are not projected to improve significantly in six months and uncertainty about energy availability remains.
The supplier deliveries index increased to 57.4 in April, following a welcome decline to 54.1 in March (due to better working supply chains leading to faster supplier deliveries).
Absa said the slight uptick in April, indicative of slower deliveries, could have been due to more demand from across the factory sector keeping suppliers busy.
The reading, however, remained below the recent highs when local port and rail issues hampered supply chains.
The purchasing price index declined slightly to 72.4 points from 74.6 in March.
Absa said that as much as this was welcomed, it remained at a relatively high level, reflecting sustained cost pressure.
The relatively weaker rand exchange rate and higher (and volatile) oil prices indicate sustained upward price pressures on manufacturers.
BUSINESS REPORT