The rise in South Africa’s manufacturing PMI in October was distorted by a pick-up in supplier delivery times and, if anything, the survey suggests that the recovery continued to lose steam at the start of Q4.
Pick-up in headline index hides weakness in recovery
- The rise in South Africa’s manufacturing PMI in October was distorted by a pick-up in supplier delivery times and, if anything, the survey suggests that the recovery continued to lose steam at the start of Q4.
- Figures released this morning showed that South Africa’s manufacturing PMI rose from an upwardly-revised 58.5 in September to 60.9 in October, the highest reading since the turn of the millennium. The latest reading was above 59.0, the most optimistic estimate collected by Bloomberg.
- The headline index appears to be painting an overly-positive picture of economic activity. The South African PMI assigns a 20% 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 rose from 62.1 in September to 64.4 last month, but we suspect that this is probably a reflection of lingering supply chain disruptions from the country’s stringent lockdown rather than strong demand.
- In contrast, the business activity and new orders components of the PMI point to a waning recovery. Both measures ticked down in October, to 62.8 and 67.0, respectively. (See Table 1.) The business activity component of the PMI tends to have a better, although still not very strong, relationship with the hard manufacturing data. On past form at least, this is consistent with manufacturing production growth of around 15% 3m/3m last month. (See Chart 1.)
- The rebound in activity in the manufacturing sector is likely to remain weak. Power cuts by state-owned electricity firm Eskom will probably continue to weigh on activity. And while industrial growth is a key pillar in the government’s recently announced economic recovery plan, it seems to rests largely on regulatory changes. Further ahead, harsh austerity will hold back demand. We share survey respondents’ more gloomy view – they turned more pessimistic about future business conditions last month.
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