South African Factory Activity Stabilizes After Lockdown Slump

JOHANNESBURG (Capital Markets in Africa) — An index measuring South African manufacturing sentiment pulled back in July as activity levels in the sector stabilize.

Absa Group Ltd.’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, fell to 51.2 from 53.9 in June, the Johannesburg-based lender said Monday in an emailed statement. The median estimate of six economists in a Bloomberg survey was 52.8.

The July reading is the first time since the start of 2019 that the index spent three straight months above 50, which signals expansion. It’s been flitting between expansion and contraction for most of the past decade as power shortages and low business confidence weigh on a sector that accounts for about 13% of gross domestic product.

Lockdown measures that shuttered most activity led to a record drop in manufacturing output in April. Restrictions were eased to so-called level 3 on June 1, allowing most businesses including steel mills, factories and all retail outlets to operate. More respondents in the survey revealed an increase in output than growth in demand, signaling that some firms were trying to catch up on production lost during stricter lockdown levels, Absa said.

The business-activity subindex of the PMI dipped to 62.9 from 64.6 and the new-sales orders subindex fell to 53.4 from 60.3.

“Some respondents noted that output remained below pre-lockdown levels,” Absa said. “This means that, on an annual basis, official output is still expected to be down in July.”

Continued weakness in the employment index suggests that even more job losses are likely in the third quarter, the lender said. That’s because formal-sector employment tends to lag activity trends.

While the index tracking business conditions in six months’ time rose to 51.8, the highest level in a year, it is still “fairly subdued” compared to the long term average, the lender said.

Source: Bloomberg Business News