The rise in the business activity component of South Africa’s manufacturing PMI shows that conditions in the sector improved in May, having come almost to a standstill in April. With manufacturing allowed to fully reopen from today, June’s data should be much better.
Manufacturing sector coming back to life
- The rise in the business activity component of South Africa’s manufacturing PMI shows that conditions in the sector improved in May, having come almost to a standstill in April. With manufacturing allowed to fully reopen from today, June’s data should be much better.
- Figures released this morning showed that South Africa’s manufacturing PMI picked up from 46.1 in April to 50.2 in May, above the Bloomberg consensus forecast of 46.5. The latest reading surpassed 50, the threshold in theory separating expansion from contraction, for the first time since July 2019.
- We wouldn’t read too much into the headline index because it’s distorted by a statistical quirk. This 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 remained elevated in May, at 73.5, almost certainly due to supply chain disruptions rather than strong demand.
- We’d pay more attention to the business activity and new orders components, which recovered from all-time lows, suggesting that activity picked up in May. (See Table 1.) On past form, the latest readings are consistent with manufacturing production falling by about 5% 3m/3m. (See Chart 1.) But the precise PMI values may not be that telling. If survey respondents were signalling conditions compared to April (as the survey asks), the May figure should have been much better. But if respondents were comparing May to “normal” conditions, then the PMI figures should haven been lower.
- With South African lockdown measures easing significantly from today, we expect activity to rebound more strongly. At the start of May, when the nation’s alert level decreased from five (the highest) to four, only parts of the sector were allowed to reopen. With the country transitioning to level three from today, the manufacturing sector is permitted to return to full operations.
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