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Absa PMI declines in June
South Africa’s Managers Index – a key measure of manufacturing activity – fell last month. Absa’s PMI index declined to 52.2 points Purchasing – still above the neutral level signaling expansion. However, the business activity index fell for a third straight month in June, stocking concerns the manufacturing sector could be a drag on GDP in the sector quarter. Joining CNBC Africa for the first time in two years is Miyelani Maluleke, Absa CIB Senior Economist.
Fri, 01 Jul 2022 12:13:40 GMT
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AI Generated Summary
- The Absa Purchasing Managers' Index (PMI) declined to 52.2 points in June, signaling potential challenges for the manufacturing sector.
- Factors such as floods, power outages, and global economic challenges are impacting the South African economy, leading to a projected contraction in the second quarter.
- Rising inflation, fueled by increasing fuel and food prices, is affecting consumer demand and adding pressure on household incomes, further complicating the economic outlook.
South Africa's manufacturing sector is facing challenges as the Absa Purchasing Managers' Index (PMI) declined to 52.2 points in June, above the neutral level but signaling a potential slowdown. The business activity index fell for the third consecutive month, raising concerns about the sector's impact on GDP growth in the second quarter. Miyelani Maluleke, Absa CIB Senior Economist, shared insights on the recent data and its implications. Maluleke highlighted several factors contributing to the weakening performance of the manufacturing sector. He pointed out that factors such as recent floods, power outages, and global economic challenges have started to impact the South African economy. The first quarter of the year saw strong GDP growth, driven in part by the manufacturing sector. However, the second quarter is shaping up to be weaker, with Maluleke suggesting a contraction is likely. He emphasized that the business activity index is a key indicator to watch, as consecutive months below 50 signal a decline in output. Maluleke mentioned that the current forecast for the second quarter is zero growth, but with the escalation of power cuts, this forecast may be revised to reflect the evolving situation. The ongoing load shedding in South Africa has significant implications for both production and demand. Rising fuel and food prices are adding pressure on household incomes, affecting overall consumer demand. Inflationary pressures are evident not only in consumer prices but also in producer prices, with the recent data showing elevated levels. The uncertainty surrounding load shedding and its impact on inflation and business confidence presents a challenging environment for the economy. Maluleke highlighted the issue of confidence, stating that it is difficult to measure the full impact but is a significant factor affecting economic decisions and investment. The recent power cuts and their implications on growth and business operations are likely to be a key consideration for ratings agencies. While South Africa had shown positive momentum in GDP recovery and reform efforts, the current challenges may lead to a reassessment by ratings agencies. The recent actions by S&P and Fitch with positive outlooks may face scrutiny in light of the current economic conditions. The outlook for the manufacturing sector and the economy as a whole remains uncertain, with challenges persisting in the coming months. Amidst these headwinds, policymakers and businesses will need to navigate carefully to mitigate the impact and support a sustainable recovery.
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