Thu, 28 May 2020

Manufacturing activity in South Africa has contracted for the 14th consecutive month, falling to the lowest levels since 2009. The sector has also recorded its worst outlook score yet, with figures below the lowest reading recorded during the 2008/09 global recession.

The Absa Purchasing Managers' Index (PMI) for the first quarter of 2020, released on Wednesday, averaged 45.9 index points, compared to 47.6 in the fourth quarter of 2019. The index is compiled by the Bureau for Economic Research (BER) and sponsored by Absa.

The bank said disruptions to global supply chains saw suppliers record slower delivery times in the first quarter of the year. And while the index report did not specifically attribute these delays to the coronavirus pandemic, many companies have fingered the global outbreak for disruptions.

Absa and BER said the slower delivery times - which ironically improved the supplier deliveries subindex in March as delays are usually an indication that suppliers are busier under normal circumstances - were observed in PMIs worldwide. They said without this 'false boost' in the supplier deliveries subindex, the headline PMI would have turned out lower in March.

"Indeed, the business activity and new sales orders indices lingered around 11-year low levels in March. The nationwide lockdown imposed towards the end of March meant that most factories lost three working days compared to a normal March, while the 21-day lockdown will result in 10 working days lost in April.

"Supply-chain disruptions mean that production is also not expected to return to full capacity immediately after the lockdown lifts. This suggests that the April factory figures will likely show a deep contraction," read the PMI report.

Should government consider an extension of the lockdown, this will likely result in some factories having to close permanently.

"This will have a sustained negative impact on production and could also result in further job losses in the sector," they warned in the report.

The report further showed that manufacturing firms who took part in the survey expect conditions to worsen in the coming months. The index tracking expected business conditions in 6 months' time fell to 29.1 index points in March, below the lowest reading recorded during the 2008/09 global recession.

"In fact, [it's] the lowest level on record series since 1999. This means that the worst is yet to come for the manufacturing sector," wrote the researchers.

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