Business outlook over the next six months declines


Absa CIB Admin


Absa PMI declined to 45.7 index points in August, with a notable drop in expected business conditions in six months’ time.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined to 45.7 index points in August, down from 52.1 in July.

While the magnitude of the decline may have been larger than anticipated, a fall in the PMI in August was not totally unexpected. This followed on July’s surprisingly solid reading despite the weak domestic demand environment and growing concerns about the health of the global economy.

All the PMI’s major subcomponents came in below the neutral 50-point mark, signalling general weakness in the sector.

For some time, the suppliers’ deliveries index had managed to remain (well) above 50 points, providing support to the headline index. However, even this indicator dropped in contractionary terrain in August. This was the first time this index declined to below 50 since April 2018.

Respondents are downbeat for third straight month

The business activity and new sales orders indices also slumped back in contractionary terrain during August after a single month above 50 points in July.

Respondents continued to be fairly downbeat about exports for a third straight month, while domestic demand likely also weighed on orders.

This negatively impacted output levels, while the sustained weakness in output growth, in turn, affected employment. The employment index fell by four index points to reach more than a five-year low in August.

Worryingly, the index tracking expected business conditions in six months’ time also dipped back below the neutral 50-point mark for the first time since November 2018. This means that more purchasing managers expect conditions to worsen (from already weak levels) going forward.

Despite the decline in the diesel price in early August, the purchasing price index rose by 5.7 points to reach 73.6 in August – the highest level since March. The increase was likely driven by the sharply weaker Rand exchange rate during the month compared to July.

This article was originally published here

Absa CIB Admin

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