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Absa PMI sinks back into negative territory in August as economy stays stuck in low gear

Absa PMI sinks back into negative territory in August as economy stays stuck in low gear
Ed Stoddard
By Ed Stoddard
2 Sep 2024
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The Absa Purchasing Managers’ Index, a key gauge of confidence in the manufacturing sector, sank back into negative territory in August. Eskom has been keeping the lights on, the Government of National Unity is firmly in place, and interest rates may soon fall, but the South African economy still faces significant headwinds.

Just when things have been looking brighter for the South African economy, the Absa Purchasing Managers’ Index for August was a spoiler of note. 

The index fell 8.8 points to 43.6 in August, bringing it back into negative territory below the neutral 50 mark. This is the fifth month out of eight so far in 2024 that it has been in the red. 

“This reflects high volatility in the sector in a year of political uncertainty, high but slowing inflation, elevated borrowing costs, and sluggish global and domestic demand, which has not been strong enough to fuel a sustained rebound in production,” Absa said. 



The new sales orders sub-index plunged more than 20 points to 34.6.

“This follows a significant improvement in July when some sales orders that had been on hold due to political uncertainty started to come through. However, demand did not expand at the same pace in August. It is important to remember that the index measures month-on-month activity, so the downtick signals a decline relative to what seems to have been a strong July,” Absa said. 

Still, the August read is clearly a disappointment. 

Significant headwinds


Eskom has been keeping the lights on, the Government of National Unity (GNU) is firmly in place, inflation is slowing and interest rates may soon fall. But the South African economy still faces significant headwinds. 

One key measurement on that front will be the second quarter (Q2) gross domestic product read that will be released on Tuesday morning by Statistics South Africa. 

Economists generally expect quarter-on-quarter growth of about 0.4% or 0.5%, meaning the economy should dodge a recession after contracting 0.1% in Q1. 

But that is still pretty sluggish growth when one considers factors such as Eskom's performance – it managed to avoid rolling nationwide power cuts during all of Q2 – and the rosier political picture with the formation of the GNU. 

The August Purchasing Managers’ Index read suggests that the economy remains stuck in low gear. But if the South African Reserve Bank cuts interest rates this month and inflation keeps moderating, that should give the economy a lift in the closing months of 2024. DM

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