South Africa’s Absa PMI Plunged to 43.6 in January

Absa's PMI Records Significant Decline in Key Sectors

by Ikeoluwa Juliana Ogungbangbe
South Africa Absa PMI January

In January, the Absa Purchasing Managers’ Index (PMI) experienced a disappointing start to the year, as its headline index dropped to a low of 43.6 points, down from December’s 50.9 points. This decline, according to Absa, can be attributed to a significant deterioration in demand and business activity. The index’s current level is considered quite low and has only reached such depths on rare occasions in the past.

One notable aspect of the decline is the substantial drop in the business activity index, which fell to 37.1 index points in January from 51.4 in December. This decrease occurred despite there being less load shedding compared to much of the previous year. Absa suggests that the decline in output was likely driven by reduced demand, as evidenced by the new sales order index, which dropped to 37.2 index points from December’s 46.3.

Respondents participating in the PMI survey indicated that demand was lower than usual, and a lack of essential materials and goods necessary for production further hindered output. The inventories index also fell to 37.7 in January, its lowest level since mid-2020, representing a six-point decrease from December’s 44.4.

On a more positive note, respondents expressed greater optimism regarding future business conditions. The index tracking expected business conditions in six months’ time rose from 57.9 in December to 58.7 in January. Absa clarifies that this improvement in sentiment does not necessarily mean that business conditions will be better than normal or long-term averages, but rather that they are expected to improve relative to the current challenging environment.

Regarding prices, purchasing prices increased to 67.5 in January, up from 62.1 in December. This uptick is attributed to a weaker rand exchange rate and higher Brent crude oil prices compared to the previous month. Absa notes that while there is some upward price pressure, it remains relatively moderate as it is below the average recorded in 2023 and 2022. However, the bank points out that price dynamics remain sensitive to unexpected shocks.

The employment index also saw a modest increase, rising to 45.2 in January from December’s 44.8. This positive development is noteworthy given the significant drop in business activity during the same period. Lastly, the supplier deliveries index declined to 61 in January compared to 67.7 in December. While this could indicate an improvement in the delivery times of supplies, it might also reflect reduced demand for supplies, which could have negative implications for the sector.

In summary, the Absa PMI for January paints a picture of a challenging economic environment characterized by declining demand, reduced business activity, and supply chain disruptions. Despite this, there is a degree of optimism regarding future business conditions, and price pressures remain relatively contained. Monitoring these indicators will be crucial in assessing the trajectory of South Africa’s economic recovery in the coming months.

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