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An index measuring South African factory sentiment plunged to a year low because of nationwide power cuts and slowing global economic growth affecting its major trading partners.
Absa's purchasing managers' index (PMI), compiled by the Bureau for Economic Research, fell to 47.6 from 52.2 in June, the Johannesburg-based lender said on Monday in an emailed statement. The median of four economists’ estimates in a Bloomberg survey was 50.4.
The gauge is below 50, which indicates contraction in activity, for the first since July last year, when a week of deadly riots, looting and arson disrupted supply chains, industrial output and demand for manufactured goods. The sub-index measuring expected business conditions in six months’ time dipped below the neutral level of 50 for the first time since the second quarter of 2020, when South Africa was in the strictest phase of its Covid-19 lockdown.
The PMI drop is a bad start to the third quarter for the manufacturing sector, which accounts for 13% of the country’s gross domestic product. Factory output already shrank on a year-on-year basis in three of the five months of 2022 for which data has been published.
State-owned power utility Eskom implemented rolling blackouts on 22 days in July, which is likely to have affected production, Absa said. However, the majority of survey responses were received before President Cyril Ramaphosa announced significant energy reforms last week in a bid to end the 14-year-old power crisis. The plan was generally well received and could have countered some of the pessimism about future conditions, the lender said.
The purchasing price subindex dropped to the lowest level since November, signaling slower cost increases. While South Africa’s inflation rate hit a 13-year high in June and is projected to go even higher, the sub-index’s move show price pressure at the start of the production pipeline likely peaked earlier this year, Absa said
