Chronicle Editor
A SEVERE Covid-19 third wave and resultant lockdown level 4 restrictions, as well as riots in KwaZulu-Natal and Gauteng, saw economic activity in the manufacturing sector suffer a record single-month decline.
The Absa Purchasing Managers’ Index (PMI) dropped by almost 14 points in July. The PMI is a measure of economic activity in the manufacturing sector, the survey is conducted by the Bureau for Economic Research.
The index dropped from 57.4 points recorded in June to 43.5 points in July. A figure above 50 signals an improvement while that below 50 signals a deterioration. Plunging below the 50-neutral mark shows the output recovery in the sector in prior months was set back notably at the start of the third quarter, the report indicated.
“The magnitude of the monthly decline, which dragged the PMI down to the lowest level since May 2020, was worse than during the hard lockdown in April 2020,” the report read.
“The riots disrupted supply chains, industrial output and the demand for manufactured goods. In addition, the manufacturing sector may also have been negatively impacted by the recent cyberattack on Transnet, which saw operations at South Africa’s major ports temporarily grind to a halt,” the report read.
The business activity index particularly had a poor month, having fallen by an “unprecedented” nearly 30 points during July to 26.6. Excluding the impact of the April 2020 hard lockdown, this is an all-time low since September 1999.
“The riots, particularly in KZN [KwaZulu-Natal], could be equated to the level 5 hard lockdown in April 2020, with even those firms not directly affected by the looting forced to close amid security concerns,” the report highlighted.
“Even after the violence abated, public transport remained an issue, starving firms of workers. Some workers also preferred to stay home until there was more certainty that the violence would not erupt again.”
Output could recover if the unrest remains under control through August. “The move to adjusted level 3 lockdown restrictions should also be supportive, especially in manufacturing sub-sectors with strong links to the hospitality and liquor industries,” the report read.
The new sales orders index fell by 25 points to 31.9. Excluding April 2020 – at the height of lockdown restrictions – the index plummeted to levels last seen during the global financial crisis in early 2009.
“Both the lockdown restrictions and the riots would have hurt orders for manufactured goods,” the report read. Sales orders are expected to recover in August. Export sales also took a dip – likely due to the “infrastructure closures and logistical bottlenecks” due to the unrest and the Transnet cyberattack, the report noted.
The employment index declined 4.1 points to the 50-neutral mark in July, but it is difficult to indicate how much of this is attributed to the looting. “Irrespective of the driver, the key message is that the manufacturing sector is unlikely to be a source of any meaningful job growth in the foreseeable future,” the report read.
Respondents of the survey expect the lifting of lockdown level 4 restrictions and calm returning to KwaZulu-Natal and Gauteng to lift manufacturing output in August. Expectations of business conditions for the next six months have lifted five points to 64.3.
-fin24
Online Reporter