Absa PMI decreases again to 52.6

1st December 2020 By: Marleny Arnoldi - Creamer Media Online Writer

The Absa Purchasing Managers’ Index (PMI) has declined to 52.6 index points in November, from 60.9 points recorded in October.

Financial services provider Absa explains that the decline comes after three consecutive upward moves and brings the index to its lowest level since July.

“While still signalling an improvement in business conditions, the drop suggests that the manufacturing sector’s recovery is starting to lose momentum.

“This was to be expected as output levels for many subsectors are nearing pre-pandemic levels and will need sustained demand growth to fuel a further output expansion,” the bank notes.

In this regard, Absa adds that it is worrying to see the new-sales orders index dip back below the neutral 50-point mark for the first time since May.

This was in part driven by a renewed decline in export sales, which could possibly be linked to lower activity in Europe due to the renewed Covid-19 lockdowns. This, as well as concerns about coronavirus developments in South Africa, likely explains why purchasing managers turned less positive about business conditions going forward.

The indicator tracking business conditions in six months’ time dipped for a second month to 52.7 index points and is now about 12 points below the level of just two months ago.

While positive news regarding vaccine developments may result in an improved global growth outlook over the medium term, the next six months remain highly uncertain, the bank notes.

In addition to the new-sales orders index, the other four components of the headline PMI also declined on a month-on-month basis.

However, encouragingly, both business activity and inventories still signalled expansion.

“Even so, the fact that both indices fell by about ten points suggests that the pace of the recovery has slowed significantly. Further, the employment index dipped lower in November. Unlike the other indices, employment never breached the neutral 50-point mark in its recovery from the lockdown-induced slump in April.

“The supplier deliveries index remained high in November, suggesting that supply chains and product availability are still constraints,” Absa adds.

Finally, the purchasing price index came down from a two-year high reached in October. The deceleration in cost pressure was likely driven by the, on average, stronger rand exchange rate which lowers the rand-cost of imported raw materials and intermediate goods.