Absa Purchasing Managers’ Index falls back into negative terrain on Eskom’s rolling blackouts

3 Oct 2022

If power cuts remain at these levels for much of the rest of the year, production in the manufacturing sector and the wider economy will simply shrink, and that probably means many jobs down the drain.

The Absa Purchasing Managers’ Index (PMI) fell to 48.2 in September from 52.1 in August and averaged 49.3 points in the third quarter (Q3). Rolling blackouts were the main factor cited, as Eskom’s inability to provide power steadily shreds confidence in the economy.

At 48.2, the PMI — an economic activity indicator based on surveys of purchasing managers in the manufacturing sector — is back in negative terrain as its range is 0 to 100. And its 49.3 average in Q3 also fell short of a passing grade, which bodes ill for economic growth in the quarter. After the Q2 economic contraction, the surge of rolling power cuts in September, the last month of Q3, may have tipped the economy into a recession.

“More intense load shedding during the month was likely to blame for the decline relative to August. Indeed, the business activity index plummeted to 38.5 points, from 50.6 in August, with some respondents citing electricity supply disruptions as the cause for the decline in production,” Absa said in a statement.

“At 43, the average for the business activity index in Q3 is well below the neutral 50-point mark and even below the Q2 average (45). This underscores the serious constraint that load shedding, at elevated stages, puts on activity growth. Even if it does not have a direct impact on curtailing output, some respondents flagged that load shedding weighs on demand for their products due to lower activity elsewhere.”

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The bottom line is that rolling blackouts are shredding what remains of confidence in the economy, and now Q4 got off to a very bad start this week against the backdrop of Stage 3 blackouts. If power cuts remain at these levels for much of the rest of the year, production in the manufacturing sector and the wider economy will simply shrink, and that probably means many jobs down the drain.

On that front, the employment subindex of the Absa PMI remained stuck below the neutral 50 mark, easing to 47.0 from 48.4 in August.

“The Q3 [employment] average is below the first two quarters of the year, which does not bode well for job growth. Indeed, a respondent remarked that further expansion or employment growth is unlikely until there is more stability in the business environment,” Absa said.

The only light at the end of this tunnel was the decline for a third month running of the purchasing price index. After both producer price and consumer inflation slowed in August from almost decade-and-a-half highs in July, this is the latest data set to suggest that inflation has perhaps peaked in South Africa.

But overall, the outlook for the manufacturing sector is fading at the moment. Factories need a reliable source of power — we are a fifth of the way into the 21st century — and without that, expect deindustrialisation to continue apace. DM/BM

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