South Africa

South African factory sentiment exceeds expectations

A gauge measuring South African factory sentiment rose more than expected in August as nationwide power cuts eased and facilities owned by Toyota Motor that were damaged by floods earlier this year reopened.

Absa Group’s purchasing managers’ index, compiled by the Bureau for Economic Research, climbed to 52.1 from 47.6 in July, the Johannesburg-based lender said Thursday in an emailed statement.

The median of four economists’ estimates in a Bloomberg survey was 48.2.

The barometer moved above 50, which indicates an expansion in activity. This suggests conditions in an industry that accounts for 13% of gross domestic product are recovering after a weak start to the third quarter.

Rolling blackouts were implemented by state-owned power utility Eskom Holdings SOC Ltd. on seven days last month, down from 22 days in July, which likely aided production.

That was evident in the business activity sub-index, which is back above the neutral 50-point mark for the first time since March, Absa said.

The lender said that the return of production at Toyota’s flood-affected factory in the eastern coastal province of KwaZulu-Natal also drove the index higher, supporting demand across the value chain.

More Upbeat

The improvement in the overall index was also driven by a gauge tracking expected business conditions in six months’ time, increasing to 57.9 in August, from 49.4 a month prior, suggesting purchasing managers are more upbeat about short-term prospects.

The purchasing price subindex dropped for a second month to the lowest level since mid-2021, even as input prices remain very high, suggesting cost pressure at the start of the pipeline has moderated, Absa said.

Still, the weakening of global demand may weigh on the outlook in the coming months. The lender said that the latest global PMI data suggests that external demand is weakening.

The International Monetary Fund cut its global growth outlook for this year to 3.2% in July, from a 3.6% forecast in April, and warned that the world economy might soon be on the cusp of an outright recession. That’s as central banks have unleashed the most aggressive tightening of monetary policy in years to cool surging inflation.


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