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Monday, 03 June 2024 14:50

PMI dips to 43.8 amid election uncertainty and sluggish demand.

By Lehlohonolo Lehana.

The seasonally adjusted Absa Purchasing Managers' Index (PMI) fell below 50 points in May 2024. The headline PMI fell to 43.8 points from 54 points in April.

Absa states that the deterioration, instead, seems to have been driven by a significant drop in demand ahead of the national elections.

Wednesday's vote saw the African National Congress (ANC) lose its outrignt majority for the first time in 30 years, meaning it must now share power for the first time in the country's post-apartheid history.

Several respondents said orders were put on hold as clients awaited the elections and the outcome thereof. The PMI has been in contractionary territory for three out of five months this year, as the manufacturing sector appears to be volatile in an election year.

Export sales also fell back in May, putting further pressure on demand.

Supplier problems in Europe affected some of the local manufacturers in the transport sector, as there were delays in the deliveries of the necessary parts used as input in the local market. Port issues remain a concern for most local manufacturers, although there was an improvement in supplier deliveries, suggesting that the situation is improving.

The supplier deliveries index declined from 57.4 in April to 55.4 in May, indicating shorter delivery times. Negatively, a decline in orders across the sector may have also supported this improvement.

The results contained some good news, as the index for expected business conditions in six months’ time increased to 57.6 in May from 55.7 in April.

Respondents likely hope for a favourable election outcome and a return of "put-on-hold" orders. Manufacturers could also be more upbeat about the global economic recovery, particularly in Europe.

Further positive news was that the purchasing price index declined to 66.9 in May from 72.4 points in April. This is the lowest reading in six months and a second consecutive month of decline in input prices, reflecting easing cost pressure.

Oil prices have remained relatively low due to sluggish demand in the global markets, which supports the manufacturing industry. The stronger rand exchange rate through most of the month likely also contributed to softer cost increases.