Absa PMI shows increased business activity despite load shedding

The Absa PMI for January shows increased business activity despite load shedding, although manufacturing PMI dipped slightly in January, but only time will tell if this improved performance can be sustained.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) for January came in at 53.0 index points in January 2023, virtually unchanged from 53.1 in December, the third straight month it remained above 50.

Increased business activity and higher inventories balanced out the decline in the employment and new sales orders indices to levels below 50. The most encouraging movement was the significant, and surprising improvement in the business activity index compared to December, despite many respondents still flagged load shedding as holding back production and new sales orders dipping lower in January.

New sales orders dropped slightly as a result of weaker domestic demand, while export sales remained unchanged at fairly high levels during January. Recent signs of global economic resilience bode well for South African exporters, Absa says.

NOW READ: Absa PMI shows worrying deterioration in demand and activity

Load shedding contributed to slowing output

Economic research group, Oxford Economics Africa, says load shedding contributed to slowing output that adversely affect new sales orders, but it would be a positive start to the new year for the beleaguered manufacturing sector if these survey findings resulted in actual output increases.

“However, it remains to be seen whether this performance can be sustained in coming months, as the actual situation is more complicated. For some time now the manufacturing sector’s fundamental momentum has been sluggish.”

According to Absa, continued activity growth requires a sustained improvement in demand and most likely a move to less intense stages of load shedding. The index tracking expected business conditions in six months’ time rose by 8.9 points to 63.8, the best level since early 2022.

ALSO READ: Absa PMI shows some recovery for factories, thanks to less load shedding

“Given the poor potential for the domestic economy to accelerate demand growth for factory goods, this was likely driven by better expectations for the global economy. There are more signs of the European economy avoiding a near-term recession and the reopening of the Chinese economy providing a further boost to global demand,” Absa says.

Purchasing price index increases the most

After a steady decline, the purchasing price index increased the most since March last year, but Absa says this index remains low relative to its long-term average. This means that cost pressure remains less intense compared to most of 2022, while the uptick in costs could possibly be linked to measures to offset the impact of load shedding on production.

Oxford Economics Africa points out that this increase comes after a period of steady decline and despite this increase, it is still below its long-term average. Statistics South Africa’s latest producer price index report showed prices at the factory gate eased to 13.5% in December compared to 2021, down from 15.0% in November compared to 2021.

“PPI inflation averaged 14.3% in 2022 and we forecast inflation to average 7.4% this year as price pressures dissipate gradually,” the group says.

NOW READ: PMI plunges again due to load shedding

“The positive PMI number for January can be difficult to comprehend considering that South Africa, on average, experienced stage 4 load shedding for most of January, compared to less intense levels of power outages seen only a few months ago.

“In any event, the index tracking expected business conditions in six months’ time increased notably to reach 63.8, the best level since early 2022, likely motivated by more optimistic forecasts for the global economy, given the domestic economy’s inadequacy to spur demand growth for manufactured goods.”

Oxford Economics Africa says in addition, there is increasing evidence that the euro area will avoid an economic downturn in the near term and the reopening of the Chinese economy is expected to lift global demand even more in 2023.

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