4 May 2020

The business activity index of the Absa PMI survey crashed to an all-time low of a mere 5.1 index points in April. The decline means that manufacturing output came to a near standstill during the nationwide lockdown, with almost all respondents reporting a decline in activity compared to the previous month. Indeed, many respondents indicated that zero production took place during the lockdown.

While some essential goods production continued during April, this was concentrated in specific subsectors. The current reading is about 25 points below the lowest level recorded during the global financial crisis, which suggests that the decline in actual manufacturing output will be well in excess of the drop recorded at the time (a 23% annual fall in April 2009). With no to little activity in the local economy, overall demand for manufactured goods also plummeted. The new sales orders index plunged to 8.9 index points in April and, like business activity, reached a record low by some margin (series since September 1999). Export sales also fell sharply in April. The employment index tracked activity lower but did not decline by the same margin as the business activity and new sales orders indices. About half of the respondents reported a decline in their staff complement. Formal-sector employment tends to lag activity trends, which means that further job losses are likely going forward.

After already slowing in March, supplier performance deteriorated further in April. In normal times, slower lead times point to increased activity and add positively to the headline PMI. However, COVID-19 related production stoppages have disrupted the global and local supply chains to such an extent that delivery times slowed sharply even without increased demand. Due to the inadvertent positive boost from supplier deliveries, the headline PMI only fell to 46.1 index points in April. This is despite unprecedented declines in the other four subcomponents and means that the headline reading does not provide a fair reflection of conditions on the factory floor in April. Most global manufacturing PMIs are affected, and in fact lifted, by this unique occurrence and the focus should thus rather be on the subcomponents of the PMI.

“The PMI survey shows the immediate, devastating impact the lockdown had on manufacturing output and overall demand. While some easing of restrictions from May should aid a slow recovery in coming months, a lot of manufacturing capacity will remain idle for some time,” said Miyelani Maluleke, Economist at Absa Corporate and Investment Banking. As a result, the index tracking expected business conditions in six months’ time ticked down further from a record-low already recorded in March.