Good news for one of South Africa’s biggest employers

An index measuring South African factory sentiment stabilized in October, signalling a rebound in manufacturing, the third-largest economic sector.

Absa’s purchasing managers’ index, compiled by the Bureau for Economic Research, fell to 52.6 from 53.3 in September, the Johannesburg-based lender said Friday in an emailed statement. The median of four economists’ estimates in a Bloomberg survey was 50.8.

The rand pared losses after the data release to trade 0.2% weaker against the dollar at 17.64 at 12:31 p.m. local time. 

While the index edged lower in part due to slowing exports and a slight decline in new sale orders, it remained above 50 for a second straight month, a streak not seen in almost two years. That signals expansion in an industry that was hard-hit by record power outages last year and high costs.

The energy supply has since recovered. The country has been without power cuts for more than seven months, and annual producer inflation eased to 1% in September – its lowest level in more than four years.  

The reading underscores “steady expansion in South Africa’s manufacturing sector, as easing cost pressures and a positive demand outlook contribute to resilience,” Absa said.

“However, manufacturers remain cautious on employment, and sustained growth will be key for a broader recovery.”

A gauge of expected business conditions in six months’ time fell to 62.7, from 70.8, Absa said. 

Still, sentiment could get a thrust from a pick-up in sales due to local demand, boosted by the start of interest rate cuts and moderating inflation, the lender said.

Pension reforms allowing savers early access to a portion of their retirement funds without penalties is also expected to boost spending.

They have already withdrawn R30 billion since September 1, when the changes started, South African Revenue Service Commissioner Edward Kieswetter said Thursday. 

South Africa’s central bank lowered its key interest rate by a quarter point in September for the first time in four years and is expected to cut rates again on November 21.

The monetary policy committee will be encouraged by slowing inflation, which cooled further below the 4.5% midpoint of its target band, where it prefers to anchor price expectations to 3.8% in September.