Data revealed that the slight improvement mostly reflects ongoing supply disruptions, not stronger demand.
Absa’s Purchasing Managers’ Index (PMI) rose by 1.6 points to 49 in March, but this does not indicate a recovery in the sector. Analysts say the modest gain largely reflects ongoing supply disruptions rather than stronger demand.
The Absa PMI is an economic activity index based on a survey by the Bureau for Economic Research (BER), sponsored by Absa, which gauges the health of South Africa’s manufacturing sector.
BER said the PMI increase was mainly driven by a slight rise in the business activity index and a sharp jump in the supplier deliveries index. However, the surge in supplier deliveries should be treated with caution.
Middle East conflict’s impact on PMI
Given the continued weakness in new sales orders, the rise in PMI (which signals that the pace of deliveries has slowed sharply) is unlikely to reflect stronger demand. BER noted that, instead, the index most likely points to ongoing supply chain disruptions and logistical constraints.
“These challenges may intensify if global shipping routes are further affected by geopolitical tensions, most notably a sustained closure of the Strait of Hormuz.”
Overall, the index indicates that the sector has not yet experienced a significant impact from the war in the Middle East on activity. However, costs had already increased before the fuel price took effect on Wednesday.
Purchasing Price Index climbs
BER said the purchasing price index increased by 20.7 points to 75.8. “This brought the index to its highest level since early 2023, and, more significantly, the increase was the largest on record (since September 1999).
“This sharp rise reflects the impact of a weaker rand and higher international oil prices, particularly for oil-derived inputs.”
The index noted that, with rising fuel prices, input costs are expected to remain elevated, placing additional strain on manufacturers’ profitability and potentially contributing to broader inflationary pressures in the economy.
Decline in business conditions
The business conditions index declined by 22.9 points in March, which the BER noted was the largest decline on record. BER added that a decline suggests a significant deterioration in business confidence among purchasing managers.
“Many respondents expressed concern about the potential impact of the ongoing Middle East conflict on both costs and demand.”
The business activity index increased slightly, but failed to recover from February’s steep losses. “On a positive note, the first-quarter average was notably better than the fourth-quarter average, suggesting the manufacturing sector had a better start to the year after recording a contraction in the final quarter of last year,” said the BER.
Support Local Journalism
Add The Citizen as a Preferred Source on Google and follow us on Google News to see more of our trusted reporting in Google News and Top Stories.