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Absa May manufacturing index surprises
The rand is rallying. Eight million people are back at work. Petrol will cost one rand and eighteen cents per litre more from next month and the latest Absa Purchasing Managers Index business activity sub-index rebounded to 43.2 in May after collapsing to an all-time low of 5.1 in April. The magnitude of the increase is surprising, given that most parts of the manufacturing sector could only operate at 30 per cent of employment capacity in May due to lockdown. Miyelani Maluleke, Economist at Absa Corporate and Investment Banking joins CNBC Africa for more.
Mon, 01 Jun 2020 15:39:45 GMT
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AI Generated Summary
- The latest Absa Purchasing Managers Index business activity sub-index in South Africa rebounded to 43.2 in May after a record low of 5.1 in April.
- The extent of the rebound in business activity was unexpected, as most parts of the sector operated at only 30 percent capacity due to lockdown.
- Challenges such as global supply chain disruptions, subdued demand, and financial constraints for some firms may impact the sector's medium-term outlook.
The South African manufacturing sector has shown signs of recovery in May, with the latest Absa Purchasing Managers Index (PMI) business activity sub-index rebounding to 43.2 after a significant drop to 5.1 in April. The rebound in business activity was unexpected in its extent, considering that most parts of the manufacturing sector were operating at only 30 percent capacity due to lockdown restrictions. Miyelani Maluleke, Economist at Absa Corporate and Investment Banking, discussed the PMI figures on CNBC Africa, shedding light on the factors at play.
Maluleke explained that the increase in business activity in May was encouraging, given the easing of lockdown restrictions to level four at the start of the month. He cautioned that the magnitude of the rebound should be interpreted with some level of caution, as monthly surveys like PMI compare data from one month to the next. The rise in activity may be partially attributed to a low base in April when many manufacturers were not operational. Maluleke suggested that it will be essential to monitor the sector's performance in the coming months to determine the true extent of the recovery.
Regarding the future of the manufacturing sector, Maluleke highlighted several factors that could influence its medium-term outlook. He noted that the weaker rand could benefit export-oriented segments of the sector. However, he also pointed out challenges such as the continued disruption to global supply chains caused by COVID-19 and potentially subdued demand from households post-pandemic. These factors could offset the positive impact of the weaker currency on manufacturing output.
Furthermore, Maluleke raised concerns about firms that may struggle to resume operations even as lockdown restrictions are eased due to financial constraints. The ability of these companies to recover and contribute to the sector's overall performance remains uncertain and will require monitoring over time.
In conclusion, while the rebound in the business activity sub-index of the PMI is a positive development for the South African manufacturing sector, challenges persist that could hinder a full-fledged recovery. As the sector navigates through the aftermath of the COVID-19 pandemic, continued monitoring and adaptation will be crucial to sustain growth and stability.
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