ABSA PMI improves for second consecutive month

The seasonally adjusted Absa Purchasing Managers' Index (PMI) showed signs of improvement in June 2024, rising to 45.7 from 43.8 in May. Although this increase is a positive shift, the index remains below the critical 50-point threshold for the second consecutive month. Despite a strong start to the second quarter with significant manufacturing expansion, the performance in May and June fell short of expectations. These findings were discussed further by Sello Sekele, Economist at Absa Group, in an interview with CNBC Africa. Sekele pointed out that business conditions continue to deteriorate, although at a slower rate in June. Even with stable electricity supply, the business activity index declined further. He attributed this decline to subdued demand in the sector, resulting in weak output and a rise in inventories. One surprising aspect of the report was the decline in the business activity sub-index to levels last seen during the July 2021 unrest, indicating a significant drop in output. Another interesting development highlighted in the discussion was the easing of cost pressures or purchasing prices. Sekele explained that the strong performance of the rand and declining fuel prices had a positive impact on input costs. This is expected to lead to a further decrease in intermediate PPI inflation, which typically precedes consumer price movements. Consequently, it is anticipated that overall prices in the economy will follow suit. Looking ahead, Sekele shared his views on inflation, suggesting that core inflation will be the primary driver of headline inflation in the coming months. He anticipates a gradual easing of headline inflation, particularly with the effects of El Nino yet to materialize. Additionally, Sekele discussed the potential positive implications for the manufacturing sector arising from the formation of the Government of National Unity (GNU). He emphasized the importance of President Cyril Ramaphosa's upcoming address on the seventh administration's policy priorities, particularly in terms of structural reforms to reduce business costs and stimulate economic activity. In conclusion, the Absa PMI report reflects a mixed bag for the manufacturing sector, with some improvements but an overall challenging outlook. While there are positive indicators such as easing cost pressures and potential policy reforms, the sector continues to face hurdles like subdued demand and output. As the economy navigates through these complexities, stakeholders will closely monitor key developments to gauge the sector's trajectory and overall economic health.