Financial institution Absa’s Purchasing Managers’ Index (PMI) closed out the year 2023 on a more robust note, gaining 2.7 points to reach 50.9 index points in December. The upward trajectory was attributed, in part, to a notable increase in business activity during the month.
Absa, in a statement released on January 8, highlighted the positive impact of decreased loadshedding on businesses that continued to operate during the festive period. However, despite these improvements, the underlying demand for manufactured goods remained somewhat subdued.
The business activity index climbed to 51.4 in December, a significant rise from November’s figure of 46, while new sales orders dipped slightly from 46.6 in November to 46.3 in December. The employment index also remained below the 50-point threshold at 44.8.
Concerns were raised by Absa regarding the ongoing crisis at South Africa’s ports, which appeared to contribute to extended supplier delivery times. The bank warned that this could impede production and lead to increased costs in the future.
In an unexpected turn, respondents to the PMI survey expressed notably more optimism about long-term business conditions. The index tracking expected business conditions six months ahead surged by 16.9 points to reach 57.9. This marked the highest level since January of the previous year.
Absa suggested that this optimism could stem from hopes that South Africa’s rail and port challenges will improve by mid-2024, and the intensity of loadshedding could lessen compared to the previous winter. Additionally, expectations of subdued inflation and lower borrowing costs, both domestically and globally, might alleviate cost pressures and stimulate demand.
However, Absa emphasized the significance of this increase, indicating that while purchasing managers are more optimistic than in much of the previous year, their optimism remains measured.
It is worth noting that the current PMI level remains below its long-term average, underscoring that while optimism is rising, it has not reached excessively high levels.
Lastly, Absa observed that the purchasing price index for December remained at a relatively low level. It saw only a slight uptick from November, where it had risen from 61.5 to 62.1.
The performance of the PMI in December provides a cautiously optimistic outlook for South Africa’s economic prospects in 2024, with several factors contributing to increased confidence among purchasing managers.
