The rise in in South Africa’s manufacturing PMI in September suggests that further easing of the country’s lockdown measures has boosted activity. But there remain many obstacles to a sustained rebound in the sector.
Rocky road to recovery
- The rise in in South Africa’s manufacturing PMI in September suggests that further easing of the country’s lockdown measures has boosted activity. But there remain many obstacles to a sustained rebound in the sector.
- Figures released this morning showed that South Africa’s manufacturing PMI rose from 57.3 in August to 58.3 in September, the highest reading since the turn of the century. The latest reading was above the Bloomberg consensus forecast of 55.5 and even the most optimistic estimate of 58.0.
- The headline PMI was probably boosted by the further easing of coronavirus containment measures. South Africa moved from lockdown level two down to one on 21st September, enabling about 95% of the economy to open compared to 85% under level two. For the manufacturing sector, level one brought little change as businesses were permitted to operate at 100% of capacity even under level two.
- The business activity component of the PMI tends to have a better relationship with the hard manufacturing data than the headline PMI figure. This remains elevated, although it dropped back from 67.0 in August to 63.8 last month. On past form, this is consistent with manufacturing production growth of around 15% 3m/3m. (See Chart 1.) The new orders component of the PMI also edged down, although businesses turned more optimistic about the future. (See Table 1.) On balance, the breakdown suggests that the underlying recovery in the sector might be losing steam.
- The road ahead for the sector looks rocky. The state-owned electricity firm Eskom has resumed power cuts at the start of Q3, and load shedding is already worse so far this year than over 2019 as a whole. The government’s yet-to-be-released economic recovery plans are unlikely to deliver substantial stimulus. And the authorities envisage harsh austerity next year and beyond, 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