Absa PMI drops by more than 14 percentage points in July

The seasonally-adjusted Absa Purchasing Managers’ Index  (PMI) dropped significantly to 43.5 points in July from 57.4 points in June. The PMI is a measure of the direction of economic trends in manufacturing.

The manufacturing sector suffered a single month decline of nearly 14 points. This is the lowest recorded level since May 2020, worse than during the hard lockdown of April 2020.

The manufacturing sector is under strain as it averages below 50 basis points. July saw South Africa being placed on Adjusted Level four lockdown restrictions for a large part of the month, as the country battled the third wave of COVID-19 infections.

There was also violent unrest in parts of KwaZulu-Natal and Gauteng. The riots disrupted supply chains, industrial output, and the demand for manufactured goods.

In addition, the manufacturing sector has also been negatively impacted by the recent cyber-attack on Transnet which saw operations at South Africa’s major ports temporarily halted.

“What we see in July is that the damage was significant to reverse some of the gains that we have seen in the recovery, the manufacturing from the depths of the hard lockdown since last year,” says Absa’s Chief Economist Miyelani Maluleke.

VIDEO | Maluleke unpacks July’s PMI:

The riots impacted business activity and new sales orders indices of the PMI in July. Both indices declined significantly in July while the business activity index sank to an all-time low since September 1999. However, economists remain optimistic.

“We’re confident that we should see a bit of a rebound in August in manufacturing expectations. August should look a bit better than what we’ve seen in June/July,” says Maluleke.

Economists say after a terrible July, the lifting of some of the Level Four restrictions and calm returning after the riots in KwaZulu-Natal and Gauteng should lift factory output from August. Author– Nothando Magudulela