Omicron, fourth wave in Europe dampen expectations for manufacturing

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The November Purchasing Managers Index lifted slightly.
The November Purchasing Managers Index lifted slightly.
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  • The November Purchasing Managers Index lifted 3.6 points to 57.2, the highest level since the third wave and the social unrest of July.
  • However, survey respondents are less positive about future business conditions for the manufacturing industry in light of the new Omicron variant, among other things.
  • In November business activity in the manufacturing sector managed to improve despite load shedding.

Manufacturing sector stakeholders are less positive about future business conditions following the detection of the Omicron variant of Covid-19, which is among other factors affecting expectations for the future.

The ABSA Purchasing Managers Index - which measures economic activity in the manufacturing sector - was released on Tuesday. A figure above 50 indicated an improvement in activity, while a move below 50 indicates a deterioration.

The November index registered a slight uptick by 3.6 points to 57.2. This is the highest level recorded since the third wave and social unrest hit the country in July. This follows a poor third quarter, the report indicated. While positive, expectations for the future are subdued.

More than a third of survey responses were received after the news of the Omicron variant, and the subsequent international travel bans, the report indicated.

"Combined with a severe Covid-19 fourth wave in several European countries, a key export market for local manufacturers, and the start of the domestic policy interest rate hiking cycle, this may explain the more subdued expectations for future business activity," the report read.

Generally business activity and new sales orders sub-indexes - which were negatively impacted in October due to the three-week steel sector strike - improved the most in November. Business activity lifted from a low of 46.1 in October to 53.6 in November. The increase comes despite load-shedding during the month, which is considered a constraint to activity by some respondents.  

"It seems that the normal end of the year rush to complete projects supported activity," the report read. It is possible that larger manufacturers may have relied on generators or efficient energy consumption in response to load shedding.

New sales orders rose from 48 points in October to 54 points in November - and this is likely a result of improved local demand. Citing comment from leading clothing retailers, the report indicates a weaker currency and global supply chain bottlenecks may have led consumers to switch from imports to domestically produced goods.

The employment sub-index also made improvements, rising to above the 50-neutral mark at 50.6, a first since July. However a decline in expected business conditions, as the country moves into a fourth Covid-19 wave signals that the improvement in employment might not be sustained.

Purchasing prices increased - signalling that manufacturers are facing input cost pressures for raw materials, packaging, energy, shipping and the weaker rand exchange rate is also a factor. The purchasing price index lifted from 84.4 points in October to 86.7 points in November.

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