South Africa Manufacturing PMI (Apr.) - Capital Economics
Africa Economics

South Africa Manufacturing PMI (Apr.)

Africa Data Response
Written by Virag Forizs

The business activity indicator of South Africa’s manufacturing PMI crashed to just 5.1 in April, highlighting the severity of the country’s lockdown. With the lockdown now easing, conditions should improve this month. But the government’s plans make clear that the manufacturing sector will only come back slowly. The risks to our forecast for a 6.5% fall in GDP this year are skewed to the downside.

Manufacturing sector to wake up only gradually from April standstill

  • The business activity indicator of South Africa’s manufacturing PMI crashed to just 5.1 in April, highlighting the severity of the country’s lockdown. With the lockdown now easing, conditions should improve this month. But the government’s plans make clear that the manufacturing sector will only come back slowly. The risks to our forecast for a 6.5% fall in GDP this year are skewed to the downside.
  • Figures released this morning showed that South Africa’s manufacturing PMI dropped from 48.1 in March to 46.1 in April, above the Bloomberg consensus forecast of 39.5. The fall in the headline figure was relatively muted, providing a misleadingly positive impression. The breakdown of the data is more telling.
  • A statistical quirk boosted the headline index. The South African manufacturing PMI assigns a 40% weight to “supplier deliveries” on the assumption that longer delays in the delivery of inputs are the result of strong demand causing producers to run into capacity constraints. This measure shot up from 64.7 in March to 89.3 in April, almost certainly due to to supply chain disruptions rather than strong demand.
  • The business activity and new orders components plunged to just 5.1 and 8.9 respectively, bringing to the fore the widespread disruptions in the manufacturing sector caused by South Africa’s lockdown. (See Table 1.) We wouldn’t read too much into the relationship between the survey and hard data, but it looks consistent with a 35% fall in output. (See Chart 1.)
  • With the country’s policy of easing restrictions in phases, activity in the manufacturing sector will only pick up gradually. As the nation’s alert level decreased from five (the highest) to four on 1st May, only parts of the sector were allowed to reopen. Large part of the manufacturing industry will only restart work once the alert category drops to three.
  • The price component of the index suggests that inflation pressures didn’t strengthen further, giving monetary policymakers space for further easing. We expect that the Reserve Bank will cut the repo rate by another 75bp by year-end, to 3.50%.

Chart 1: South Africa PMI & Manufacturing Production

Sources: ABSA/BER, Stats SA, Capital Economics

Table 1: South Africa Manufacturing PMI

Headline

New Orders

Business Activity

Future Conditions

Employment

Prices

Jan.

45.2

42.5

44.6

42.5

37.8

69.8

Feb.

44.3

31.2

33.7

38.7

37.5

68.0

Mar.

48.1

32.1

30.7

29.1

39.0

71.4

Apr.

46.1

8.9

5.1

27.3

26.6

71.4

Sources: ABSA/BER, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com