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Optimism about future SA business conditions declines again - index

Apr 01 2019 12:24
Carin Smith

For the second month in a row, respondents to the Absa Purchasing Managers' Index (PMI) scaled back their optimism about future business conditions. 

The PMI sub-index measuring expected business conditions in six months' time fell to 59.6 in March from 65.9 in February.   

The seasonally adjusted Absa PMI fell to 45.0 points in March from 46.2 in February. This was the third consecutive month of decline, according to a statement released on Monday.

For the index a value of 50 indicates no change in activity, a value above 50 indicates increased activity and a value below 50 indicates decreased activity.

As was the case in February, two of the PMI's major subcomponents came in above 50 points, while three were stuck in negative terrain. However, all but one of the main sub-indices declined compared to February.

The new sales orders sub-index edged lower by 0.5 points to reach 42.4 in March. The index suggests that demand was weaker in the first quarter of 2019 than during the fourth quarter of 2018.

Slower global growth

According to the index report, this seems to stem from a deterioration in export performance, while domestic demand conditions also remained poor. "Exporters are faced with slower global growth, particularly in the Eurozone, which is a key trading partner. A preliminary reading of the Eurozone manufacturing PMI fell to the lowest level since 2014 in March," states the report.

It said weaker demand likely contributed to a further dip in the business activity sub-index to 41.7 points. Output was likely also affected by consecutive days of (daytime) load shedding, hampering production at factories without alternative power sources.

On the back of a further dip in output, the employment sub-index declined by 5.4 points to reach 42.7 in March. After five months of decelerating cost increases, the purchasing price sub-index ticked up to 74.3 in March.

"The acceleration in cost pressures was likely due to the sharp fuel price hike at the start of the month, as well as the weaker rand exchange rate during March compared to February," states the index report. 

After the report was released on Monday, Investec economist Kamilla Kaplan said cost pressures will likely intensify in coming months as a result of the 13.9% electricity tariff increase that came into effect on April 1, and the sizeable fuel price increases of R1.31/litre for petrol and 82c/litre for diesel in April.

Kaplan added that advance indications provided by the PMI suggest that actual manufacturing production may have weakened at the start of 2019.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) is extremely concerned about the consistent decline in the Absa PMI.

According to Seifsa economist Marique Kruger the rate of contraction of the PMI since the beginning of the year is worrisome.

According to Kruger, the deterioration in the data was underpinned by sharp declines in the employment, inventories and business activity sub-indices, despite the promising performances from the supplier performance sub-index, which perched above the neutral 50-point mark in March 2019.

* The Absa PMI is compiled by the Bureau for Economic Research and sponsored by Absa. The PMI is calculated as the weighted average of production (0.25), new orders (0.30), employment (0.20), supplier deliveries (0.15) and inventories (0.1). The survey from which the indices are compiled requires that respondents to indicate each month whether a particular activity for their company has increased, decreased or remained unchanged.

absa  |  ber  |  pmi  |  sa economy
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