Eskom blackouts send sentiment to 11-year low

Sentiment in South Africa’s manufacturing industry fell to the lowest level in more than a decade in February as the prospect of continued power cuts and concern about the global economy weighed on confidence.

That makes the recovery of an economy that the government estimates expanded at the slowest pace in 10 years in 2019 even more challenging.

Absa Group’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, dropped to 44.3 from 45.2 in January, the Johannesburg-based lender said in an e-mailed statement on Monday. That’s the lowest level since August 2009. The median estimate of three economists in a Bloomberg survey was 45.1.

Rolling blackouts weighed on the economy in the final quarter of last year. The likelihood of power outages continuing for the next 18 months, as announced by the head of Eskom, dragged down four of the five main sub-components of headline PMI in February. The business activity sub-index dropped to 33.7 from 44.6 and that dragged down the employment sub-index. New-sales orders slumped to 31.2 from 42.5.

Some respondents flagged electricity blackouts as a reason for the decline in activity, Absa said. Weakness in external demand also contributed to the drop in sales orders, according to the lender.

Contraction

The manufacturing PMI has been below 50 for all but nine months of the past three years, indicating contraction in an industry that accounts for about 13% of South Africa’s GDP.

There’s unlikely to be a turnaround soon, with the sub-index tracking expected business conditions in six months’ time falling to 38.7 from 42.5. That’s the lowest level since February 2009 and the gauge is now at less than half of the level recorded in February 2018, when euphoria about Cyril Ramaphosa’s ascent to the presidency peaked.  — Reported by Rene Vollgraaff, with assistance from Simbarashe Gumbo, (c) 2020 Bloomberg LP