SA’s Absa PMI rises for third consecutive month

South Africa's Absa Purchasing Managers' Index (PMI) has risen for a third consecutive month, reaching 57.4 index points in March. This marks a significant increase from 53 in the previous month, indicating a strong growth trend in the country's manufacturing sector. The rise in the PMI was supported by improvements in all five subcomponents, highlighting a broad-based recovery. Peter Worthington, Senior Economist at Absa, shared insights on the latest numbers, pointing out the driving factors behind this growth and the potential challenges ahead. Worthington expressed optimism about the current performance of the manufacturing sector, attributing it to the robust performance in the mining sector and the positive impact on manufacturing. He also noted the significant contribution of the agricultural sector to overall manufacturing production, particularly in food products. Despite the positive growth trajectory, Worthington highlighted some surprising elements in the data. He mentioned that the sector showed resilience even amidst challenges like load-shedding in March, showcasing a stronger performance than expected. The unexpected strength in the manufacturing sector has led to a more bullish outlook than initially anticipated. Discussing the broader economic forecast, Worthington acknowledged the accumulation of positive indicators but remained cautious about the pace of recovery from the pandemic. While the data points towards a stronger economy, he emphasized the need for sustained growth to reach pre-pandemic levels of activity. On the topic of employment in the sector, Worthington highlighted the ongoing challenges in South Africa's labor market. While there was a slight improvement in the employment metric within the PMI, indicating some positive signs, overall employment levels are still shrinking. To drive job creation and reduce unemployment, Worthington suggested the need for higher GDP growth rates. Inflation and its impact on the manufacturing sector were also discussed during the interview. Worthington noted an increase in input prices, primarily driven by factors like oil prices. However, he mentioned that overall price pressures remain subdued, and he projected a low repo rate until early 2022. He highlighted supply shocks as the main drivers of inflation, indicating that the South African Reserve Bank (SARB) is unlikely to react to temporary spikes. The recent global supply disruptions, including the blockage of the Suez Canal by the Ever Given container ship, raised concerns about potential impacts on the PMI figures. Worthington discussed the supplier's performance component of the PMI, which showed lengthening delivery times. While this could be a result of supply chain disruptions or increased demand, it remains unclear how long these effects will last. In conclusion, despite the challenges faced by the manufacturing sector, the latest PMI data reflects a strong growth momentum in South Africa. The resilience of the sector, combined with positive external factors, paints a hopeful picture for future economic recovery. However, uncertainties surrounding employment, inflation, and global supply chains continue to pose challenges that require careful monitoring and strategic interventions.