Johannesburg, 4 May 2020 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about a huge dip in business activity in the broader manufacturing sector, as reflected by the sub-index of the ABSA Purchasing Managers’ Index (PMI) released today.
As a lead indicator, the headline PMI provides an insight to how purchasing executives, producers and various stakeholders in the broader manufacturing sector view the coming month. The data indicates that the headline PMI dipped to 46.1 points in April 2020, from 48.1 points in March 2020, moving the data further from the benchmark level of 50, which separates expansion from contraction.
Speaking after the release of the index, SEIFSA Economist Marique Kruger said the deterioration in the data indicates that local businesses felt the full impact of the Covid-19 pandemic, which brought the economy to an abrupt halt in April.
Moreover, Ms Kruger said the weak economic environment is compounded by declining demand, sales and exports.
“These poor trends are worrisome to both consumers and businesses, with extended ramifications on jobs and efforts to re-industrialise the economy,” said Ms Kruger.
She added that there is a need to urgently cushion the negative impact of the ongoing COVID-19 on local businesses by ensuring that companies have the necessary cashflow to buy raw materials, produce and sell intermediate manufactured goods. She said this was especially important, given that global and local value chains have collapsed.
Worryingly, the trend in the majority of the sub-indices deteriorated in April 2020 when compared to March 2020, with notably the business activity sub-index dipping from 30.7 points to 5.1 points and the new sales orders sub-index dipping from 32.1 point to 8.9 points. The best performing sub-index was the supplier’s performance sub-index, increasing to 89.3 points in April 2020 from 67.4 points in March 2020.
Ms Kruger said that given the current state of the economy, it is clear that there is a need for increased demand-side interventions to boost aggregate domestic demand, including renewed commitment to support local procurement and pursuing import substitution, as some trading partners are already easing the COVID-19 lockdown requirements earlier than South Africa. She said these types of initiatives will assist in rejuvenating the fragile local economy.
“The challenging operating environment calls for local businesses to adapt and get back to doing the basics right in order to ensure their sustainability. SEIFSA is hopeful that local companies will continue to make use of the various financial packages introduced by the Government or initiatives from SA Inc., aimed at assisting struggling businesses, with positive effects on the seasonally adjusted PMI for May 2020,” she concluded.