Loadshedding hit manufacturing in December

14 January 2020 | Sakenuus
Loadshedding in December - which reached an unprecedented stage six - hampered the struggling SA manufacturing sector, while global trade wars between US and other economies meant local exporters faced tough conditions both at home and abroad.

The Absa Purchasing Managers’ Index (PMI), which monitors whether manufacturing and business activity in the country is growing or contracting, fell for a second month in December to 47.1 index points from 47.7 points recorded in November. The index is sponsored by Absa but is conducted by the University of Stellenbosch’s Bureau for Economic Research (BER) and the monthly indicator is based on purchasing managers’ sales orders, their inventories and on whether they are employing more people, among other things.

The PMI decline in both November and December followed a shocking dive in September when the index reached a 10-year low. While it rebounded in October, that increase wasn’t sustained. In fact, the headline PMI only managed to rise above 50 points (which indicates expansion) for two months in 2019. The rest of the year, it was below 50.

Dr Azar Jammine, director and chief economist at Econometrix, said given how December load shedding took everyone by surprise, he had expected an even bigger decline in the PMI. “(Given) the loss of confidence which that load shedding brought about, I thought the decrease would have been even sharper,” he said.

Jammine said there was no telling whether the SA economy shrank in the last quarter of 2019 - which would mean a recession, given that the economy contracted in the third quarter.

“The PMI is not a necessarily a reliable figure to predict what the GDP is likely to do. Contrary to how it moved, car sales shot up sharply in December which contradicts the notion of a recession at this time,” said Jammine.

Of the six elements used to measure the PMI, business activity fell to the lowest level since April 2017 with some of the respondents highlighting electricity load shedding as the reason behind production decline. “The risk of further load shedding in January dampens expectations for a strong recovery in output at the start of 2020,” said the BER.

As for new sales orders, the index plunged to 36.9 points as exports orders fell for the second month in a row. The positive news was the recovery of the purchasing price index after a decline in November and the employment index’s rise to a nine-months high.

The index tracking expected business conditions in six months’ time declined again in December after a slight improvement in November. The index fell to 45.9 from 47.4 in November. This is in stark contrast to the start of 2019 when the index was at a lofty 67.2 points. The return of load shedding likely soured expectations in December, while some may be concerned that export demand could continue to falter in the first half of 2020.

The purchasing price index rose in December to reach 65.8 index points, from 63.3 in the month before. Despite the increase, the index remains fairly low after sharp declines in October and November. – Fin24



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