Renewed lockdowns in Europe could hit SA manufacturing

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The Absa Purchasing Manager's Index for October increased to 60.9 index points.
The Absa Purchasing Manager's Index for October increased to 60.9 index points.
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  • The local manufacturing sector is continuing on a recovery path since its record contraction in April.
  • However, renewed restrictions on economic activity in Europe could negatively impact demand for SA exports.
  • Some survey respondents say that demand for their products is nearing pre-lockdown levels, while others are still struggling.

The local manufacturing sector is continuing on its recovery path, but renewed lockdown restrictions in Europe could negatively impact demand for South African exports, new data suggests.

The Absa Purchasing Manager's Index – which measures activity in the manufacturing sector – increased to 60.9 index points in October. This is up from 58.5 index points recorded in September. A figure above 50 indicates an increase in activity, while a figure below 50 indicates a decrease in activity.

"The further increase at the start of the fourth quarter is an encouraging sign that the manufacturing sector continues to recover following a record contraction in April," the report read.

While some respondents to the survey indicate that demand and capacity are nearing pre-Covid levels, others report that they are still struggling as demand for their products is still below pre-lockdown levels.

"Renewed restrictions on activity in Europe amid a resurgence of Covid-19 cases might weigh on future demand for South African exports and may stir up concerns about a possible second wave in South Africa with a possible move back to a stricter lockdown level."

This was reflected in the index, which tracks business conditions in six months' time – it declined to 56.7 points in October, down from 64.5 points reported for December.

Last week UK Prime Minister Boris Johnson announced a new four-week Covid-19 lockdown. Germany, France, Austria, Greece and Portugal are among the European countries which have similarly imposed lockdowns in the past week, Bloomberg reported.

October's PMI was driven mainly by high readings (above 60)  for business activity and new sales orders, although they both ticked down slightly from September. The inventories sub-index particularly rose to its highest level in 13 years- at 61.1 points.

The employment sub-index rose for the fifth consecutive month to 49.1 points in October. It is still below the 50-neutral mark. But the increases show that employment levels are stabilising after significant job losses were signalled for the second and third quarters of the year.

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