Absa Purchasing Managers’ Index contracts to 43.6 in August

South Africa's Absa Purchasing Managers’ Index (PMI) declined significantly in August, falling by 8.8 points to 43.6, compared to 52.4 in July. This marks the fifth month out of the eight months of 2024 where economic activity contracted. The business activity index played a significant role in the decline, plummeting by 11.9 points to 38.9 in August. Andiswa Nondudule, Absa CIB Economist, joined CNBC Africa to delve into the reasons behind this unexpected contraction. Nondudule highlighted that while there was a sense of euphoria in the lead-up to July due to the formation of the government of national unity, the high base set in July led to a pullback in August. The decline in business activity and new sales orders contributed to the contraction, with sluggish demand globally and domestically being key factors. Looking ahead, Nondudule mentioned that manufacturers are slightly less optimistic about future business conditions, but a sustained improvement in electricity supply and an expected rebound in demand could boost the manufacturing sector. Additionally, the stability within the purchasing price index, coupled with the expected interest rate cuts by the South African Reserve Bank, could lead to a more positive outlook for businesses in the country. Despite the current contraction, there is hope for improvement in the coming months as economic activity picks up, with Absa recently revising its 2025 economic growth forecast to 2.2 percent. While it is challenging to predict the exact trajectory of the PMI numbers, monitoring the data closely will provide more insights into the economic landscape of South Africa.