Manufacturers See First Growth in 10 Months in South Africa
Manufacturers See First Growth in 10 Months in South Africa
An index measuring South African manufacturing sentiment rose above 50 for the first time in 10 months in May as some lockdown restrictions aimed at curbing the spread of the coronavirus pandemic were eased.
Absa Group Ltd.’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, rose to 50.2 from 46.1 in April. The median estimate of five economists in a Bloomberg survey was 46.5. While a reading above 50 signals expansion, the gauge has been stuck close to that level for most of the past decade as power shortages and low business confidence weigh on a sector that accounts for about 13% of gross domestic product.
South Africa moved to alert level 4 from May 1, following five weeks of a strict level 5 lockdown that shuttered almost all activity except essential services. The partial opening of the economy helped to lift the business-activity subindex of the PMI to 43.2 from a record low of 5.1 in April and also boosted the new-sales orders subindex to 41.2 from 8.9.
The headline PMI was also pushed up by the supplier deliveries subcomponent, even though it reflected production delays rather than an uptick in activity, Absa said. “In normal times, an order that takes longer to be delivered is indicative of increased demand by the manufacturing sector for inputs in the production process,” the Johannesburg-based lender said. “Covid-19-related production stoppages disrupted the supply chain to such an extent that deliveries took longer to arrive even without increased demand.”
While South Africa further eased lockdown restrictions from Monday by moving to alert level 3, which allows most businesses including steel mills, factories and all retail outlets to reopen, factory output is unlikely to return to pre-lockdown levels because some supply-chain disruptions persist, Absa said. The potential resumption of power outages driven by an increase in activity could also affect a recovery, the lender said. The subindex measuring expected business conditions remained below 50, even as the reading of 47.5 was the highest since July.
Estimates from the National Treasury show South Africa’s GDP could contract by as much as 16.1% this year, depending on how long it takes to contain the virus and for the economy to recover
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