The fall in South Africa’s manufacturing PMI in December points to the recovery grinding to a halt at the end of 2020. The recent tightening of virus containment measures, and the slow and limited access to vaccines means that the economic picture will probably get worse, before it gets better.
Dark clouds gathering over recovery
- The fall in South Africa’s manufacturing PMI in December points to the recovery grinding to a halt at the end of 2020. The recent tightening of virus containment measures, and the slow and limited access to vaccines means that the economic picture will probably get worse, before it gets better.
- Figures released this morning showed that South Africa’s manufacturing PMI dropped from 52.6 in November to 50.3 in December. The headline index declined for a second consecutive month, having reached a 20-year high of 60.9 in October.
- The soft headline reading suggests that the manufacturing sector ended 2020 on a very weak note. Nearly all of the PMI components declined. Business activity and new orders fell the most, to 44.9 and 45.2, respectively. (See Table 1.) The employment component dropped back as well, from 47.2 in November to 43.8 in December.
- While the relationship between the business activity component of the PMI and the hard manufacturing data is far from perfect, the latest reading is consistent on past form with manufacturing output stagnating last month in 3m/3m terms, down from an expansion of around 10% 3m/3m in November. (See Chart 1.)
- Second waves of COVID-19, domestically and globally, probably weighed on activity. Lockdowns in advanced economies at the end of 2020 almost certainly dragged on demand for South Africa’s exports. And in South Africa, the authorities announced tighter containment measures on 28th December, the impact of which will probably be more fully reflected in January’s PMI reading.
- The near-terms clouds on South Africa’s manufacturing sector and the economy as a whole have darkened considerably, which will stymie the recovery. And officials have managed to secure only a very limited supply of vaccines to be delivered in Q1. Containment measures will have to stay tight for some time. Further ahead, the government’s harsh fiscal austerity plans will hold back demand.
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, firstname.lastname@example.org