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Weaker demand and production constraints have dealt a blow to the domestic manufacturing sector which has seen deteriorating conditions at the end of the third quarter according to the latest Absa Purchasing Managers Index (PMI).
The PMI reading was softer in September after declining by 4.3 points to 45.4, as new sales orders dropped by more than 10 index points to a level last seen in mid-2021.
“This most likely reflects the weakening growth momentum in the Eurozone and the UK, both key export markets for local manufacturers. On the domestic front, restrictive borrowing costs and perhaps also the sharp fuel price hikes at the start of September weighed on demand,” according to the survey.
The step up in load shedding and poor demand during September resulted in a volatile month and third quarter for production in the manufacturing sector. Business activity tanked by 8.1 points to 41.9.
READ: Manufacturing suffers a setback after PMI retreats
The survey found: “For the entire third quarter, the business activity index averaged 43.3, down from an average of 48.1 in the second quarter. The move lower would be consistent with a quarterly contraction in actual manufacturing output. If this materialises, it will weigh on overall GDP growth momentum in the third quarter.”
Input costs for producers were on the increase for the second consecutive month in September. It’s no surprise as data from Statistics South Africa showed an increase in producer inflation in August to 4.3% from 2.7% in July 2023.
The survey found:
Despite the domestic challenges, economic growth has proven resilient in the first half of the year, with growth projections now upwardly adjusted albeit still below one percent for 2023. The Reserve Bank’s monetary policy committee adjusted its growth forecast from 0.2% earlier in the year to 0.4% in September.
Meanwhile, fixed investment accelerated in the second quarter of 2023 to 7.9% from 0.2% in the three months to June.
READ: Mixed expectations for second quarter's economic growth ahead of Tuesday's announcement
However, the domestic economy is also hampered by severe criminal activity according to the latest Global Organized Crime Index which ranked South Africa seventh out of 193 countries and third on the Continent after Nigeria and the DRC for mafia-style criminal groups and organised crime syndicates.
The index measures levels of organised crime in a country and their resilience to these crimes, South Africa is failing to combat the organised criminal activity that now contributing to smothering its fragile economic growth rate.
“South Africa is plagued by quasi-criminal style networks or syndicates that have transnational connections and engage in various criminal activities such as drugs, fraud, stock theft and armed robberies. The economy is fuelled largely by networks with corrupt relationships,” the report said.
