South Africa's PMI Indicates Economic Downturn Amid Supply Constraints

Recent figures from the Absa Purchasing Managers' Index (PMI) hint at a slowdown in economic activity going into the fourth quarter, with purchasing managers bracing for a deterioration in business conditions. Despite a slight rise in the PMI to 48.2 points in November from a previous slump, the index suggests a persisting decline in the manufacturing sector's performance.

Economic Indicators from PMI

The PMI, which reflects the economic health of the manufacturing sector, is compiled from a survey of purchasing managers within South Africa and acts as a crucial barometer for the broader economy. An index below the neutral 50-point threshold suggests contraction in the sector. Despite an improvement in the headline figure, underlying indices such as business activity and new sales orders continue to show a reduction, albeit at a slower pace, emphasizing continued challenges.

Subdued Employment and Supply Chain Woes

Even as activity picks up, the unemployment situation remains grim, with the employment index lingering at 41.1 points—the implication: job creation is not keeping pace with any increases in activity. Logistics challenges, notably at South Africa's ports, are causing delays and potentially driving up costs, which could hamper the sector's recovery and competitiveness.

Purchasing Managers' Outlook

Sentiment for future conditions is equally bleak, with the expected business conditions index dropping to 41 points, its lowest since the height of the COVID-19 lockdowns. Concerns span from supply chain disruptions to intensified power cuts, all of which dampen the outlook for the manufacturing sector.

Price Pressures and Inventory Struggles

On a brighter note, cost pressures appear to be easing, with the purchasing price index seeing its lowest levels since early 2018. Nevertheless, the inventories index is suffering, potentially tied to the aforementioned supplier delivery issues and resulting in the lowest stock levels since mid-2021.

Economic Projections and Competitiveness

Economists warn that the current economic climate points toward stagnation risks, with low growth forecasts of 0.8% for the current year and 1.0% in 2024. Without a rebound in demand and a boost in investment, significant economic improvement remains elusive, possibly resulting in long-term competitiveness and welfare challenges.

Economic, Manufacturing, PMI