Wednesday , January 27 2021

Optimism about the future of SA business conditions are declining again – index

For the second consecutive month, respondents graduated to the Absence Purchasing Managers' Index (PMI) according to their hopes for future business conditions.

The PMI sub-index measuring the expected business conditions fell in six months to 59.6 in March of 65.9 in February.

The seasonally adjusted Absam PMI reduced to 45.0 points in March of 46.2 in February. This was the third consecutive month of decline, according to a statement published on Monday.

For the index a value of 50 shows no change in activity, a value above 50 shows an increase in activity and a value below 50 shows less activity.

As was the case in February, two of the main representatives of the PMI came into more than 50 points, while three were stuck in negative land. However, all but one declined from the main sub-indexes compared to February.

The new sales orders sub-index meant less than 0.5 points to reach 42.4 in March. The index suggests that demand was weaker in the first quarter of 2019 than in the fourth quarter of 2018.

Slower global growth

According to the index report, this appears to be due to a decline in export performance, while domestic demand conditions also remain poor. "Exporters are facing slower global growth, particularly in the Eurozone, our key trading partner. The PMI's preliminary reading of the Eurozone manufacturing fell to the lowest level since 2014 in March," state the report.

He said that it was likely that the weak demand contributed to a further reduction in the business activity sub-index to 41.7 points. It is likely that output was also affected by consecutive days of loading during the day, disrupting factory production without alternative power sources.

After a further reduction in output, the employment sub-index fell by 5.4 points to reach 42.7 in March. After five months of slowing down costs, the purchase price index had ticked up to 74.3 in March.

"The pace in cost pressures was likely due to the significant increase in fuel prices at the beginning of the month, as well as the weakest exchange rate during March compared to February," he says. the index report.

After the report was released on Monday, Investec economist Kamilla Kaplan said cost pressures are likely to worsen in the coming months due to the 13.9% increase in electricity tariff which came into effect on April 1, with a significant increase in fuel prices from R1.31 / liter for petrol and 82p / liter for diesel in April.

Kaplan added that advance signals provided by the PMI suggested that actual production could have diluted at the beginning of 2019.

The South African Steel and Engineering Industries Federation (Saphi) is very concerned about the steady decline in the PMI Abs.

According to Saxa economist, Marique Kruger, the PMI rate since the beginning of the year has been unpleasant.

According to Kruger, the downturn in the data was backed up by sharp reductions in the employment, stock and business activity sub-indices, despite the promising performances of the supplier performance sub-index, which was higher than the average. 50 points neutral mark in March 2019.

* Absa PMI is compiled by the Economic Research Office and sponsored by Absa. The PMI is calculated as weighted average production (0.25), new orders (0.30), employment (0.20), delivery of suppliers (0.15) and inventories (0.1). The survey that the indexes are compiled requires respondents to identify each month whether a particular activity for their company has increased, decreased or stayed the same.

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