Factory production stays on course

SA manufacturing production came in virtually unchanged in January, pointing to a fourth successive month of modest expansion, despite the country continuing to experience the worst bout of load-shedding yet.

Absa’s purchasing managers’ index (PMI), released on Wednesday and measured by the Bureau for Economic Research (BER) in partnership with Absa Bank, held virtually steady in January at 53 points from December’s 53.1, ahead of Bloomberg consensus expectations of 52.1.

The outcome was surprising given that SA has experienced, on average, stage 4 loadshedding daily since the start of the year.

On Wednesday, after a brief and modest respite of lower stages of rotational power outages, Eskom announced it has been forced by a cluster of breakdowns to raise loadshedding back to stages 5 and 6.

This took the total amount of breakdowns to 18,123MW, or 38.8% of the installed generating capacity offline, reducing the energy availability factor to just below 50%.

There has been growing pressure on President Cyril Ramaphosa to declare a state of disaster, which will give the government greater legal latitude to cut through some of the red tape that is slowing adoption of the reforms outlined by the national energy crisis committee (Necom) in August 2022.

POWER OUTAGES

Earlier this week, head of the secretariat of Necom Rudi Dicks said it will aim to add 8,800MW of power supply to the country’s grid before year-end.

Rotational power outages continue to be a drag on confidence and therefore investment potential. Moreover, manufacturers are forced to deal with higher input costs from elevated inflation as well as higher borrowing costs.

Economists have said heightened load-shedding is the single largest constraint on economic growth and on the manufacturing sector, which contributes 14% to GDP and, according to the latest quarterly Stats SA labour statistics, created the largest number of new jobs in the third quarter.

“Overall, the January PMI data were a lot more positive than what was likely expected,” Absa senior economist Miyelani Maluleke said.

He said the headline January reading suggests businesses may be becoming more resilient to load-shedding and there may be growing hopes that the world economy will avoid a sharp, synchronised recession.

The Absa PMI is a monthly indicator of business conditions in the manufacturing sector. The results come from monthly surveys conducted among a representative group of purchasing managers in the sector.

A reading above 50 points suggests expansion in the sector; one below 50 contraction.

Among the subsectors, a decline in the employment and new sales orders indices to levels below 50 were offset by higher activity and inventories returning to positive terrain.

The business activity index surged in January to 56 points, from contractionary readings of 49.5 and 45.2 in November and December, respectively.

The index tracking expected business conditions in six months’ time increased notably to reach 63.8 — the best level since early 2022.

Africa economist at Oxford Economics Jee-A van der Linde said the latest improvement is likely to have been motivated by more optimistic forecasts for the global economy, given the domestic economy’s inadequacy in spurring demand for manufactured goods.

“What’s more, there is increasing evidence that the euro area will avoid an economic downturn in the near term, and the reopening of the Chinese economy is expected to lift global demand even more in 2023,” Van der Linde said.

Data also shows that the employment index dipped back below the neutral 50-point mark in January, falling to 48.4 index points.

The purchasing price index, which increased from 64.4 points in December to 69.3 in January, remains low relative to its long-term average.

Maluleke said the uptick in costs could possibly be linked to measures to offset the effects of load-shedding on production.

He said that despite the rand being on average slightly stronger to the dollar compared with December, the Brent crude oil price was higher.