South Africa’s industrial production fell back into contractionary territory in September as the severity of intensified power cuts during the month hampered both output and demand.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI), released yesterday (Mon), fell to 48.2 index points in September from an improved 52.1 index points in August.
Absa said more intense load shedding during the month was likely to blame for the decline relative to August, with the index averaging 49.3 points in the third quarter.
The September PMI print pointed to a renewed contraction in the country’s manufacturing activity as Eskom ramped up its rotational load shedding to Stage 6 and maintained Stage 4 for more than two weeks.
September was by far the worst month of the year in terms of the cumulative amount of load shedding.
Absa said the business activity index plummeted from 50.6 points in August to 38.5 points in September, with some respondents citing electricity supply disruptions as the cause for the decline in production.
At 43, the average for the business activity index in the third quarter was well below the neutral 50-point mark and even below the second quarter average of 45 index points.
Absa said this underscored the serious constraint that load shedding, at elevated stages, puts on activity growth as some respondents flagged that load shedding weighed on demand for their products due to lower activity elsewhere.
The bank said respondents also turned less optimistic about business conditions going forward.
Absa senior economist Miyelani Maluleke said the PMI results did not bode well for a strong recovery in actual manufacturing production from a bleak second quarter.
In the second quarter, manufacturing activity was disrupted by the devastating floods in KZN which affected industrial parks such as Toyota SA and South African Breweries plants.
The war in Ukraine and strict Covid-19 lockdown restrictions in China also affected global supply-chains and the availability of raw materials.
However, Maluleke said a normalisation in conditions from the temporary shocks weighing on output in the second quarter, particularly in the automotive production value chain, should aid production.
“This means that the sector is unlikely to perform as poorly as in the second quarter, but that a strong rebound also seems unlikely,” Maluleke said.
“It must be added that manufacturing production should post modest year-on-year growth in the third quarter of 2022 after output was negatively affected by relatively strict lockdown restrictions and the looting and civil unrest in July 2021.”
The index tracking expected business conditions in six months’ time fell back to 51.2 points from 57.9 in August and an average of 61.5 in the first six months of the year.
Concerns about the persistence of load shedding, the health of the global economy and perhaps the lingering impacts of higher borrowing costs likely affected sentiment.
The new sales orders index also fell sharply from 48.6 points in August to 40 points in September.
In addition to subdued domestic demand, the weakening external environment, reflected in the fourth consecutive decline in the export index, likely also contributed to the decline in orders.
BUSINESS REPORT