South Africa's Economy Faces Challenges Despite Rise in PMI

Despite a slight upturn in Absa’s Purchasing Managers’ Index (PMI) in August, key indicators contradict an overall improvement in South Africa's economy. The PMI, a significant measure of manufacturing activity that includes new orders, inventory levels, production, supplier deliveries, and employment situation, rose by 2.4 points to 49.7, despite the economic pressures. Notably, this figure is just short of the neutral 50-point mark, separating an economy in expansion from one in decline.

The upsurge was driven by the business activity index, which, impressively, jumped almost 12 points to 50, following a considerable fall in July. However, this factor masks the true picture of the South African economy. At 50, the business activity index suggests a stagnation in month-on-month manufacturing output for August.

Besides, the new sales orders index, another crucial indicator, remained well below the expansion-decline threshold of 50, revealing the persistently subdued demand for domestic manufactured goods.

Similarly troubling is the lengthening delivery times, indicative of a struggling logistic sector. Notably, the rise in these times has been attributed by Absa to disruptions associated with the torching of several trucks and the recent taxi strike in Cape Town.

The PMI employment index recorded a downward trajectory, falling by 4.5 points to a distressing 42.8. This setback, coupled with other potential constraints like the impact of load-shedding, casts a gloomy shadow over the recovery prospects of South Africa's labour market in the manufacturing sector.

With a significant diesel price hike looming, the PMI price index could see further increases. These intertwined pressures put potential investors on high alert and underscore the urgency of appropriate economic interventions.