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Absa PMI crashes to all time low owing to lockdown

4th May 2020

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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The Absa Purchasing Managers’ Index's (PMI's) business activity subindex crashed to an all-time low of 5.1 index points in April.

The decline means that manufacturing output came to a near standstill during the nationwide lockdown to combat the spread of Covid-19, with almost all respondents reporting a decline in activity compared with the previous month.

Many respondents indicated that zero production took place during the lockdown.

The PMI, compiled by the Bureau for Economic Research (BER) and sponsored by Absa, is based on the widely used Purchasing Managers Index (PMI) produced by the Institute for Supply Management in the US.

The PMI is calculated as the weighted average of the business activity, new orders, employment, supplier deliveries and inventories subindices.

For the month, new sales orders were at 8.9; employment was at 26.6; supplier performance was at 89.3;  and inventories was at 20.0.

In a statement, Investec noted that the manufacturing PMI gauge declined by less than expected in April to 46.1 from 48.1 in March.

The company posited that thi moderate drop in the PMI masks the actual collapse in manufacturing activity, specifically, the supplier deliveries sub-index, which carries the largest weighting of 40% of the headline index, increased by a marked 21.9 index points to 89.3. The increase in the index represents a slowing in deliveries reflective of supply chain disruptions.

The month of April was characterised by the strictest level of nationwide lockdown (level five) which provided for the manufacture of essentials only. The extent of the impact is evident in the output, new orders, export sales and purchasing activity sub-indices which all declined at record rate, noted Investec.

"The April PMI outcome suggests that the drop off in actual manufacturing production was sharper than during the 2008/09 global financial crisis. The outlook for the remainder of the Q2.20 quarter is poor. The easing of the lockdown level from five to four on 1 May will not offer much relief as it still precludes much of the manufacturing sector from operating," the company said.

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) noted it concer about a huge dip in business activity in the broader manufacturing sector, as reflected by the sub-index PMI.

As a lead indicator, the headline PMI provides an insight to how purchasing executives, producers and various stakeholders in the broader manufacturing sector view the coming month. The data indicates that the headline PMI dipped to 46.1 points in April, from 48.1 points in March, moving the data further from the benchmark level of 50, which separates expansion from contraction.

Speaking after the release of the index, SEIFSA economist Marique Kruger said the deterioration in the data indicates that local businesses felt the full impact of the Covid-19 pandemic, which brought the economy to an abrupt halt in April. Moreover, Kruger said the weak economic environment is compounded by declining demand, sales and exports.

“These poor trends are worrisome to both consumers and businesses, with extended ramifications on jobs and efforts to re-industrialise the economy."

She added that there is a need to urgently cushion the negative impact of the ongoing Covid-19 on local businesses by ensuring that companies have the necessary cashflow to buy raw materials, produce and sell intermediate manufactured goods. She said this was especially important, given that global and local value chains have collapsed.

Kruger said that given the current state of the economy, it is clear that there is a need for increased demand-side interventions to boost aggregate domestic demand, including renewed commitment to support local procurement and pursuing import substitution, as some trading partners are already easing the Covid-19 lockdown requirements earlier than South Africa.

She said these types of initiatives will assist in rejuvenating the fragile local economy. “The challenging operating environment calls for local businesses to adapt and get back to doing the basics right in order to ensure their sustainability. SEIFSA is hopeful that local companies will continue to make use of the various financial packages introduced by the government or initiatives from SA Inc., aimed at assisting struggling businesses, with positive effects on the seasonally adjusted PMI for May 2020,” she said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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