By Dr Roelof Botha, Economic Advisor to the Optimum Group
April saw a welcome recovery of two key Purchasing Managers’ Indices, perhaps signalling a measure of stabilisation of economic conditions in South Africa.
The S&P Global South Africa Purchasing Managers’ Index (PMI) – a composite gauge designed to give a single-figure snapshot of operating conditions in the private sector economy – moved back above the neutral level of 50 in April, signalling an improvement in the health of the private sector. A reading above 50 is a sign of expansion and the rebound follows a dip during March to 48.4.
Viewed from the perspective of a three-month average (to reduce seasonal volatility), the S&P PMI for April confirms an upward trend since the end of last year – more or less in line with the country’s leading composite business indicator.
Exhibit 1 | S&P Global PMI for South Africa (3-month average)
Source: S&P Global PMI. Data as at 30 April 2024. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.
According to S&P Global, signs of stabilisation appeared in April with regard to both output and new orders. Locally, despite an element of demand weakness, a softer reduction in new orders occurred, whilst the absence of electricity rationing assisted many firms in expanding output. The sectors for construction and wholesale, and retail trade remained under pressure, but the level of activity increased in the manufacturing and services sectors.
A second key indicator of economic activity in the manufacturing sector – the Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research at Stellenbosch University – has also started 2024 on a strong footing, returning to above the neutral 50 index point level in April. Business activity seems to have been buoyed by a full month without loadshedding, a comment that was also evident from the survey conducted by S&P Global.
Absa’s seasonally adjusted headline PMI rose to 54 in April from 49.2 points in March. The rebound comes from improved business activity, while better domestic demand filtered through to higher new sales orders.
The results of these two PMIs are correlated to the latest data on the utilisation of productive capacity in the manufacturing sector, which inched up during the first quarter of the year, although still marginally short of the levels obtained before the COVID-19 pandemic.
Fortunately, the impressive recovery of the rand exchange rate during May bodes well for a further decline in the consumer price index (CPI), which will hopefully lead to a reduction in interest rates, thereby stimulating demand and providing additional impetus to business activity.
