SA factory mood stabilises after riot-driven swings

An index measuring South African factory sentiment stabilised in September, two months after deadly riots, looting and arson disrupted supply chains, industrial output and demand for manufactured goods.

Absa Group Ltd.’s purchasing managers’ index, compiled by the Bureau for Economic Research, fell to 56.8 from 57.9 in August, the Johannesburg-based lender said Friday in an emailed statement. The median of five economists’ estimates in a Bloomberg survey was 55.3.

The index remains above 50 for a second straight month, signaling expansion in an industry hard-hit by the worst civil unrest in South Africa since the end of White-minority rule in 1994.

The turmoil caused the average PMI reading for the third quarter to drop by 4.4 points relative to the previous three months, Absa said. The quarterly average of the index tracking business activity dropped to 46.3 from 55 in the second quarter and suggests “the manufacturing sector is likely to be a drag on the quarterly GDP momentum in the third quarter,” the lender said.

The industry accounts for 13% of gross domestic product. The economy is seen shrinking in the three months through September partly due to the riots, with the central bank predicting a contraction of 1.2%.

The new sales orders index fell to 59.2 from 60.9, reflective of a softening in export demand that’s consistent with recent declines in PMI indicators for the Eurozone and the U.K., Absa said.

The index tracking input costs rose for a second straight month and that, together with the lengthening of supplier delivery times, likely shows the impact of worsening global supply-side bottlenecks, the lender said.

“Looking forward, besides the cost implication of supply and shipping constraints, the much weaker rand exchange rate in the latter part of September and the recent further rise in the Brent crude oil price should keep input cost pressures elevated in the foreseeable future,” Absa said.

Even so, purchasing managers remain upbeat with the gauge tracking expected business conditions in six months’ time rising to 62.3 from 59.7. The further easing of local coronavirus lockdown measures could also lift sentiment.

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