Absa PMI dips below 50 in March 2024

South Africa's Purchasing Managers' Index (PMI) dipped below 50 in March 2024, indicating a contraction in the manufacturing sector. Silo Sikele, a macroeconomist at Absa, shed light on the factors contributing to this decline and provided insights into the future outlook for the industry. The PMI, a key gauge of manufacturing activity, saw a significant decrease in March, with four out of five sub-indices declining on a month-on-month basis. The main drivers behind this contraction were sluggish demand and deteriorating output. However, there was a silver lining in the form of improved supply chain efficiency, as evidenced by shorter supply delivery times. One concerning trend highlighted in the latest PMI report was the upward pressure on prices. Producers' prices have been rising for the fourth consecutive month, driven by factors such as increasing fuel prices and the impact of a stronger than expected El Nino effect on maize production. This inflationary pressure has led the South African Reserve Bank to express caution, with expectations of holding interest rates steady in the near term to mitigate these risks. Despite the current challenges facing the manufacturing sector, there is a sense of optimism among industry players regarding future economic activity. Manufacturers' sentiment for the next six months is notably upbeat, marking the most positive outlook since the beginning of 2023. This optimism is attributed to factors such as the easing intensity of load shedding and improvements in logistical operations, albeit gradual. Looking beyond South Africa's borders, the global economic landscape presents a mixed picture. While the United States is experiencing a rebound in manufacturing activity, key trading partners like the Eurozone and China continue to grapple with subdued performance. South Africa's exposure to both external and domestic challenges, including issues like load shedding and logistical constraints, underscores the complexity of the current economic environment. In light of these dynamics, Absa's forecast anticipates the first interest rate cut in July, followed by subsequent cuts in September and November, each at a magnitude of 25 basis points. However, the timing and magnitude of these rate cuts may be subject to adjustment based on evolving economic conditions. As South Africa navigates through these headwinds, the resilience and adaptability of the manufacturing sector will be crucial in shaping the nation's economic trajectory.