By Schalk Burger.
The financial services firm Absa’s Purchasing Managers’ Index (PMI) declined by 0.9 points to 45.3 points in January – the third consecutive contraction and the lowest level since August 2024.
This suggests that the loss of momentum observed at the end of 2024 has not reversed at the start of the year, Absa noted.
However, it was encouraging that activity and demand improved from low levels, albeit remaining in contractionary terrain, the bank said.
The business activity index increased by 3.2 points to 43.5 in January, meaning the pace of contraction has slowed relative to December (40.3 index points), but lower than November (49 points).
The slight improvement in activity comes amid signs of recovering demand as the new sales orders rose to 42 points from 37.4 in December. Both the domestic and export markets showed signs of recovery, Absa noted.
Export sales recovered slightly, but the index remained below the November level. Respondents flagged some issues that were hurting production and demand, including trade disruptions with Mozambique owing to the political turmoil and fuel shortages affecting air freight
The upcoming closure of ArcelorMittal South Africa’s longs business was flagged as potentially impacting some producers over the next 6 to 12 months, the bank said.
Further, while activity and orders rose, the other three components of the headline PMI declined.
The supplier deliveries index decreased by 6.1 points to 49.9 points, indicating that delivery times are faster, which could be positive if it points to better working supply chains.
However, given the logistics issues flagged by respondents, this seems unlikely and probably points to weaker demand for supplied goods, Absa pointed out.
Meanwhile, the employment index decreased by two points to 44.4, and remained in contractionary territory for the tenth consecutive month. Employment contracted during the first three quarters of 2024, and the PMI suggests it will take some time to recover, it highlighted.
“A more substantial recovery in activity is required for any improvements in employment to start coming through.”
Additionally, the inventories index declined to 46.5 in January from 50.7 in December. This indicates that there may be shortages in bought stock, and this may lead to production delays should there be a significant uptick in demand in the short term, the bank said.
Further, the purchasing price index increased by 7.8 points to 68.2 in January, reversing a sustained downward trend, owing to a weaker rand exchange rate and higher international oil prices, with a fuel price increase at the start of the month.
A further fuel price increase is expected in February. Renewed cost pressure could, in part, explain why the index tracking expected business conditions in six months’ time decreased by 2.6 points to 64.9 in January. Uncertainties about global trade dynamics could have added to the drop.
However, despite the fall, the current level indicates that manufacturers remain fairly optimistic about business conditions in the future, Absa said.