The manufacturing sector in South Africa experienced a tough start to the third quarter as it fell into contractionary territory for the first time in 12 months, due to crippling power cuts.
The Absa Purchasing Managers’ Index (PMI) fell from 52.2 points in June to 47.6 in July.
This was the first reading below the neutral 50-point threshold since July, 2021 when the looting and unrest in KwaZulu-Natal and Gauteng hurt output.
Absa said electricity supply disruptions were the likely cause of the drop in production last month, while the less supportive international environment also affected the headline index.
South Africa’s power supplier Eskom ramped up its rotational load shedding last month, as its coal-fired power plants continued deteriorating.
“Indeed, local purchasing managers turned decidedly more downbeat about business conditions going forward, amid local electricity woes and concerns about global growth,” Absa said.
The index tracking expected business conditions in six months’ time, dipped to 49.4 in July, its weakest since the strictest phase of Covid-19 lockdown as respondents expected conditions to worsen going forward.
However, the vast majority of responses were received before President Cyril Ramaphosa announced significant energy market reforms last week, which was generally well received and could have countered some of the pessimism.
Absa also said business activity and new sales orders indices were the big drivers of the decline in the headline PMI as both indices were deep in negative terrain, pointing towards weak domestic activity and demand.
Export sales were also lower, although to a lesser degree. In addition, the employment index dipped, albeit less so than activity.
The inventories and supplier deliveries indices stayed above 50, returning to levels in line with those seen in May.
On the cost front, the purchasing price index signalled the slowest pace of cost increases since the start of the year.