The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined by 1.6 index points to 47.6 in June 2023. This is the lowest level since mid-2021. For the first time since 2018, all five subcomponents used to calculate the headline PMI were below the neutral 50-point level, pointing to a worsening of business conditions in the sector. A key drag on the sector seems to come from weak demand, with the new sales orders index edging down once again as the decline in export sales deepened and domestic demand remains under pressure. The index declined from 47.5 in May to 45.6 in June.
On a more positive note, the business activity index improved relative to May, although it remained below the neutral 50-point mark for a fifth consecutive month. The index rose from 47.7 to 48.9 in June. The improvement was likely on the back of significantly less (daytime) load-shedding during the month, with weak demand conditions thwarting a bigger recovery. For the full second quarter, the business activity index came in slightly lower than the first-quarter average, but this is solely on account of a high January reading. Broadly speaking, the level of the business activity index suggests that momentum in official production data remained
very subdued in the second quarter.
Along with the improvement of business activity in May, there was also somewhat better news on the cost front, as the purchasing price index declined to the lowest level since the start of the year. The index declined from 77 to 71.3. A stronger rand exchange rate (relative to the previous month) and a drop in the fuel price at the start of the month likely contributed to the moderation in cost pressures.
Another notable development in the June survey was the turnaround in forward-looking sentiment. The index tracking expected business conditions in six months’ time rose from an extremely depressed 43.7 to 52.4 in June. To be sure, the current level remains well below the long-term average, but at least signals that purchasing managers expect conditions to look better by the end of the year instead of worse.
