The sharp fall in South Africa’s manufacturing PMI in November points to the recovery hitting the brakes in the middle of Q4 and, while recent developments regarding vaccines have brightened the outlook, harsh austerity will act as a key headwind to the economy over the coming quarters.
Recovery on ice
- The sharp fall in South Africa’s manufacturing PMI in November points to the recovery hitting the brakes in the middle of Q4 and, while recent developments regarding vaccines have brightened the outlook, harsh austerity will act as a key headwind to the economy over the coming quarters.
- Figures released this morning showed that South Africa’s manufacturing PMI dropped from a 20-year high of 60.9 in October to 52.6 in November. The latest reading was well below even the most pessimistic estimate collected by Bloomberg of 58.0.
- The fall in the headline index points to a sharp slowdown in activity in the middle of Q4. All of the PMI components declined, with the new orders and business activity plunging the most, to 49.0 and 52.2 respectively. (See Table 1.)
- 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 growth of 10% 3m/3m last month, down from more than 30% 3m/3m in September. (See Chart 1.)
- Renewed concerns about COVID-19 domestically and abroad probably weighed on activity. Weaker global demand on the back of tighter containment measures in many advanced economies, particularly in Europe, may have put a brake on export orders.
- And in South Africa, a steady rise in daily new infections has raised the prospect of a renewed tightening of restrictions on domestic activity. Reflecting this, survey respondents turned more pessimistic about future business conditions in November.
- Even as near-term clouds will eventually lift with the prospect of vaccines, the recovery in South Africa’s manufacturing sector is likely to remain subdued. The government’s plan to spur industrial activity seems to rest heavily on regulatory changes. And further ahead, the authorities envisage harsh fiscal austerity, which 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