The Absa Purchasing Managers’ Index (PMI) reflects a very poor start to the year for the local manufacturing sector. The headline index declined to 43.6 index points in January 2024, down from 50.9 in December. Worryingly, the decline came on the back of a sharp deterioration in demand and activity. Outside of the global financial crisis in
2008/09 and the pandemic-induced lockdown period of 2020, the index has only fallen to this low level a handful of times.
Following an encouraging uptick in December, the business activity index plunged to 37.1 index points in January. The deterioration was despite relatively less load-shedding in January compared to most of 2023. The decline in output was likely driven by a sharp decline in demand as the new sales orders index fell to 37.2 index points. Some respondents referred to demand being lower than usual. Furthermore, export orders stuck below 50 for a third month, which does not happen often. A lack of materials and goods required in the production process may have also held back output. The inventories index declined once more, to 37.7 in January, and reached the lowest level since mid-2020.
Despite current woes, respondents turned more optimistic about business conditions going forward. The index tracking expected business conditions in six months’ time rose to 58.7, up from 57.9 in December. It is perhaps important to highlight that the survey asks respondents to compare their expectations relative to current conditions. The improvement thus means that conditions are expected to be better than the current dismal environment, not better relative to ‘normal’ or long-term business conditions.
On the price front, purchasing prices ticked up once more. The index rose to 67.5, up from 62.1 in December. This was likely driven by a weaker rand exchange rate and a higher Brent crude oil price relative to December. This is still somewhat below the average recorded in 2023
