3 May 2021

Following three consecutive months of improvement, the seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined slightly to 56.2 index points in April from 57.4 in March. Despite the modest pullback, the index is now about 2.5 points above the average recorded in the first quarter of the year and about 26 points above the April 2020 reading recorded during the strictest phase of South Africa’s lockdown.

Encouragingly, for the first time since early 2012, all five subcomponents of the PMI were in positive terrain. Even the subcomponent most often trailing below the 50-point mark, the employment index, managed to increase to well above 50 in April. It is too early to tell whether this points to a sustained improvement in job creation in the manufacturing sector, but it is a positive development nonetheless.

Business activity continued to increase in April, albeit at a much slower pace compared to the previous month. The index fell back to 50.8 points in April from 56.1 in March. New sales orders remained robust, although also increasing at a slightly slower pace than in March, with the index declining from a solid 60.4 points to 58.7. Purchasing managers continued to report improved export sales. Export-orientated manufacturers could continue to benefit from the global economic growth recovery, which is expected to accelerate through the remainder of the year. Indeed, led by a booming US economy, prospects for the global economy have brightened further of late. This could, in part explain why respondents turned notably more upbeat about expected business conditions in six months’ time. The index rose to a three-year high of 67.9 index points from an average of 58.5 points recorded in the first quarter of 2021 and a dismal 27.3 points seen this time last year. Furthermore, although the risk of a third wave of COVID-19 infections remains present, relatively low increases in new local infections during the month may have also underpinned the recovery in sentiment. This does mean that should virus metrics turn less favourable, sentiment could sour once again.

Another factor that could quell sentiment is the continued increase in cost pressures. The purchasing price index came down slightly from a five-year high reached in March, but remained elevated. The rand exchange rate strengthened slightly compared to March, which could have helped with the costs of imported raw materials and intermediate goods. However, this was countered by a sharp increase in the fuel price at the start of the month. Prices of some key input goods have also trended upwards of late and with a low COVID-induced base set in 2020, annual producer prices are set to increase markedly in the next few months.