Absa PMI recovers after steep slump in January

The latest Purchasing Managers Index (PMI) released by Absa has shown signs of improvement, with the index rising to 51.7 points in February from 43.6 points in January. This move has brought the PMI back into expansionary territory after a steep slump in January. However, a closer look at the subcomponents reveals underlying challenges that paint a less optimistic picture. Miyelani Maluleke, Absa's Macroeconomist, shared insights on the latest PMI figures in an interview with CNBC Africa. Maluleke highlighted the importance of analyzing sub-indices such as new sales and business activity to gauge the strength of demand conditions and production. While February showed some improvement compared to January, both sub-indices remain below the 50-point mark, indicating underlying softness in the manufacturing sector. The headline index's rise above 50 was primarily driven by the Supplier Deliveries Index, which reflects supply chain constraints rather than robust production and demand. The ongoing port constraints and disruptions in the Red Sea shipping route are also impacting local PMI figures. Maluleke noted that the Suppliers Deliveries Index, although slightly improved, still signals supply chain challenges that could hinder manufacturing performance. These constraints, coupled with the weakening rand, pose risks for local manufacturers, affecting costs and input prices. The weak rand has seen a lift in export orders, benefiting exporters but also increasing input costs for manufacturers. Maluleke emphasized the potential inflationary pressures stemming from the weakening currency and rising purchasing price index, urging vigilance in monitoring consumer price inflation. Another concerning aspect highlighted by Maluleke is the persistent employment index, which has remained below the 50-point mark for 14 consecutive months. With close ties between the mining and manufacturing sectors, job losses in mining could potentially spill over into manufacturing, exacerbating the employment challenges. However, improvements in areas like energy supply could offer some relief to parts of the manufacturing sector. Looking ahead, the data on manufacturing performance in the first quarter does not paint a robust picture for GDP growth in South Africa. Despite narrowly avoiding a technical recession in the second half of 2023, the soft start to the year and lingering challenges suggest that the manufacturing sector may not significantly contribute to GDP growth in the first quarter. While statistical data may show a different narrative, the lived experience of many South Africans reflects a challenging economic reality marked by a cost of living crisis. With uncertainties around inflation, supply chain constraints, and employment, the road to economic recovery remains arduous for the country.