The jump in South Africa’s manufacturing PMI in August confirms that the sector was boosted as the country eased lockdown restrictions further. But with power cuts becoming a problem once again and fiscal austerity on the horizon, the road to a full recovery remains bumpy.
Manufacturing sector back on the wobbly road to recovery
- The jump in South Africa’s manufacturing PMI in August confirms that the sector was boosted as the country eased lockdown restrictions further. But with power cuts becoming a problem once again and fiscal austerity on the horizon, the road to a full recovery remains bumpy.
- Figures released this morning showed that South Africa’s manufacturing PMI jumped from 51.2 in July to a 13-year high of 57.3 in August, once again improving after a slip in July. The latest reading was above the Bloomberg consensus forecast of 50.9 and even the most optimistic estimate of 52.0.
- The business activity component of the PMI tends to have a better relationship with the hard manufacturing figures than the headline PMI figure. This rose to 67.0, from 62.9 in July (a dip from the reading in June). On past form, this PMI component is consistent with manufacturing production growth of close to 20% on a 3m/3m basis. (See Chart 1.) The forward-looking components of the PMI – new orders and future conditions – rose sharply too. (See Table 1.)
- The improvement in the PMI figures follows the authorities’ decision in mid-August to ease containment measures as new coronavirus cases dropped, moving the national lockdown level from three down to two, which allowed the entire manufacturing sector to return to full operation.
- Looking ahead, there are many obstacles to a sustained rebound in the manufacturing sector though. The state-owned electricity firm Eskom resumed power cuts last month, which will weigh on output. And a resurgence of coronavirus cases is a possibility, especially given that daily new cases remain relatively high. Further ahead, the authorities’ plan to embark on harsh austerity will hold back demand. The manufacturing sector is certainly not out of the woods yet.
Chart 1: South Africa PMI & Manufacturing Production
Sources: ABSA/BER, Stats SA, Capital Economics
Table 1: South Africa Manufacturing PMI
Sources: ABSA/BER, Capital Economics
Virág Fórizs, Africa Economist, email@example.com