South Africa’s manufacturing PMI reading offered mixed messages once again in June, but the business activity component suggests that activity in the sector continued to recover from April’s standstill.
Manufacturing sector on the mend
- South Africa’s manufacturing PMI reading offered mixed messages once again in June, but the business activity component suggests that activity in the sector continued to recover from April’s standstill.
- Figures released this morning showed that South Africa’s manufacturing PMI rose from 50.2 in May to 53.9 in June, the highest level in seven years. The latest reading was above the Bloomberg consensus forecast of 49.8, and even the most optimistic forecast of 50.0.
- We wouldn’t read too much into the headline index because it might be reflecting mixed messages from survey respondents. If poll participants signalled conditions compared to May (as the survey asks), the reading should arguably have been much better as the country’s severe lockdown measures were eased at the start of June, enabling much of the manufacturing sector to significantly ramp up operations. But if respondents were comparing June to “normal” conditions, the PMI should have been lower.
- Looking at the breakdown of the data, the business activity component is consistent with manufacturing production rising by 15% 3m/3m in June. (See Chart 1.) It surged from 43.2 in May to 64.6 last month, the highest since 2006. (See Table 1.) Other PMI components rose too. Most notably, respondents turned more optimistic about future business conditions, with the sub-index surpassing 50 – the threshold that, in theory at least, separates expansion from contraction – for the first time in 11 months.
- Some manufacturing businesses are not yet permitted to fully operate under the current lockdown level and, with a further easing restrictions not yet in sight, this will prevent a full rebound in manufacturing production. The remaining businesses can return to 100% of employment only under lockdown level two, for which a timeline has not been provided by officials. This adds to the reasons to expect a sluggish economic recovery in South Africa.
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