JOHANNESBURG – RECOVERY in the manufacturing sector is expected to slow further in early 2021 due to the Covid-19 second wave and the return of loadshedding.
Absa on Friday predicted a gloomy picture after its Purchasing Managers’ Index (PMI) declined further in December dragged by declining employment.
Absa said the seasonally adjusted PMI declined to 50.3 index points from 52.6 in November, the lowest level since July 2020.
The reading just above 50 index points suggested that growth was levelling off after solid month-on-month gains were recorded in the wake of April’s lockdown-induced plunge in activity.
Absa said that despite a strong start in October, the average reading for the fourth quarter was basically unchanged from the third quarter. “This suggests that while another quarter-on-quarter uptick in manufacturing output is likely, the pace of the recovery momentum has slowed,” it said.
South Africa officially entered a second wave of the Covid-19 pandemic early in December, prompting the government to reintroduce some lockdown restrictions to curb the spread.
The country’s key exports markets like the UK banned flights from South Africa following the discovery of another variant of Covid-19.
Eskom also introduced loadshedding towards the end of the month to save energy for the expected rise in demand when businesses reopen after the Christmas holidays.
Absa said the business activity index fell to 44.9 index points in December, meaning that manufacturing output declined compared to the previous month.
New sales orders index fell further to 45.2 points in December, compared to an average of 53.7 points for the full fourth quarter.
As was the case in November, a deterioration in export orders seems to have contributed to the decline in overall orders.
The employment index was the biggest drag on the headline PMI in December as it fell to 43.8 points from 47.2 points in November.
The index tracking expectations for business conditions in six months’ time was largely unchanged from November at 52.9 points, compared to readings well above 60 points just three months ago.
Absa, however, said the Covid19 second wave and accompanying renewed lockdown restrictions will likely also negatively impact domestic demand, particularly from the liquor and hospitality sectors.
The bank also said the return of load shedding, especially if no longer contained to the late evenings, also argued against a strong rebound in January.
Investec’s Kamilla Kaplan said the decline in the Absa PMI was likely linked to the second wave of Covid19 infections, and consequent reimposition of lockdown measures, in a number of South Africa’s key export markets. “Additionally, the waning of pent-up demand from the stricter lockdown months in the first half of 2020 is also a likely factor to the drop in new sales orders,” Kaplan said.
“Momentum likely moderated on a continuation of generally weak domestic demand and the effects on trade and demand of the Covid-19 second waves in South Africa’s key export destinations.”