01 March 2021

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) increased to 53 index points in February from 50.9 in the month before. The further increase was supported by three of the five subcomponents gaining relative to January. Only the employment index moved lower, while the supplier deliveries index also ticked down but remained well above the neutral 50-point mark and thus supported the headline figure.

The most encouraging outcome of the February survey was a continued improvement in new sales orders. Following a rise in January, the index rose further to 54.0 index points, which is the best level since October 2020. The improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions also contributed to an uptick in domestic demand. The improvement in orders supported an increase in the business activity index. Following four consecutive declines, the activity index rose by a sizeable 8.6 index points in February. The increase suggests that production growth reaccelerated after losing steam towards the end of last year. The inventories index also regained all of January’s losses and moved back above the neutral 50-point mark.

Purchasing managers remain relatively optimistic about the six-month outlook, with the expectations index unchanged at 59.2 index points. A factor which may quell sentiment going forward could be continued upward pressure on costs. This is likely, especially if the demand environment remains relatively weak and producers cannot pass on these costs to mitigate some pressure on profitability. Indeed, after a sharp increase the previous month, the purchasing price index rose further. A hefty fuel price increase at the start of February likely contributed to the continued acceleration in cost pressure. Fuel prices are expected to rise further in coming months on the back of a higher Brent crude oil price as well as an increase in fuel levies. A sharp hike in electricity tariffs will also push up costs.