01 February 2021  

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) edged up slightly to 50.9 index points in January, from 50.3 in December. While up on the month before, the January reading is much lower than the average recorded in the final quarter of 2020. Indeed, the business activity index declined for a fourth consecutive month which points to a further loss in the recovery momentum.

The bout of load-shedding mid-month may have weighed on production in January. In addition, the adjusted level 3 lockdown regulations would have negatively affected production in the liquor and hospitality-related industries in particular. The renewed increase in the supplier deliveries index (indicative of supplies being less readily available) suggests possible supply chain disruptions in January. This is likely not only due to local restrictions, but also tight(er) lockdown regulations in the rest of the world.

On a positive note, the new sales orders index rose by 2 index points to 47.2 in January. This was despite a further deterioration in export sales, which suggests it was supported by a reduction in the rate of decline in domestic demand instead. Even with the uptick, the level of the index continues to point to constrained demand conditions. Purchasing managers did turn more optimistic about the operating environment going forward. The index tracking expected business conditions in six months’ time rose to 59.2 index points, from 52.9 in December. This might be linked to prospects of an improved global economy during the second half of the year, which should boost exports.

The purchasing price index increased sharply in January, pointing to a reacceleration in cost pressures for manufacturers. This was driven by a weaker rand exchange rate and higher Brent crude oil price compared to the previous month. A hefty fuel price increase on Wednesday could put further pressure on costs in February.