The Absa Purchasing Managers’ Index (PMI) fell sharply to 50.7 index points in April as a result of a sharp drop in the business activity and new sales orders indices, this time amid devastating flooding in parts of KwaZulu-Natal, which led to facilities in several manufacturing subsectors being forced to temporarily halt production to assess damage.

"Even factories not directly affected by the flooding may have seen a drop in demand. This is the lowest level of the PMI since July 2021 when unprecedented looting and rioting shook local production and demand," Absa said.

Further, in addition to the shock to domestic business conditions, respondents also noted a sharp drop in export sales. It remains to be seen whether the drop in exports was owing to the temporary Durban harbour closure and other logistical constraints related to the floods, or whether this is owing to a deterioration in external demand.

"While normal harbour operations resumed after a few days, export deliveries will remain strained for some time owing to significant backlogs and limited availability of vessel space," it added.

Notably, the business activity index plunged to 39.6 index points in April, which suggests a sharp monthly contraction in manufacturing output at the start of the second quarter.

Further, even businesses not affected by the flooding, either directly or indirectly, had to grapple with Stage 4 load-shedding during the month.

"The new sales orders index was another big drag on the PMI, with the index falling deep into negative terrain. Both business activity and new sales orders fell to the lowest level since the looting shock in July 2021," Absa highlighted.

The headline PMI was prevented from falling into negative terrain, or below the neutral-50 mark, by the inventories and supplier deliveries indices holding up in April, although both declined relative to March.

"However, given the deterioration in business conditions, a surprising result was that the employment index was the only major subindex which improved in April, edging back above the neutral 50-point mark to 51.5 points.

"This suggests that respondents already looked past the disruptions in April. Indeed, the index tracking expectations of business conditions in six months’ time held up well. The index improved slightly to 55.7 index points," Absa noted.

The employment index increasing by three index points in April is somewhat surprising given the downward movements in the other indices, which may suggest that the declines in activity and demand may be deemed temporary, not necessitating producers to shed further jobs, the PMI added.

Meanwhile, there was some relief on the cost front, as the purchasing price index declined after reaching a record-high level in the previous month. The rand exchange rate was, on average, unchanged compared with the previous month, but the Brent crude oil price came down slightly, which may cap the magnitude or limit further increases in petrochemical prices.

The business activity index lost more than 20 points in April to 39.6 from 60.5 in March. Production stoppages owing to the KwaZulu-Natal flooding, as well as fairly intense load-shedding during the month, likely contributed to the drop.

"The extent of the decline in the index suggests that actual manufacturing output likely fell on a monthly basis in April," Absa noted.

"As was the case during the looting shock in July 2021, the new sales orders index plummeted in April. Temporary production stoppages by manufacturers, as well as of key clients not directly affected by the flooding in KwaZulu-Natal, likely contributed to the decline in demand.

"Further, respondents noted an even sharper decline in export sales compared to July 2021. As export sales were most likely disrupted owing to the temporary closure of the Durban harbour, it is hard to ascertain whether the export decline was owing to weaker global demand, especially from Europe.

"The signals have been mixed so far, with reopening effects to date shielding the Eurozone economy, and services in particular, from adverse Russia-Ukraine war impacts," Absa pointed out.