South Africa: PMI returns to expansionary territory for the first time in 18 months in October
November 4, 2020
The South Africa IHS Markit Purchasing Managers’ Index (PMI) rose to 51.0 in October, from September’s 49.4 and marking the best reading in over two-and-a-half years. As such, the index climbed above the critical 50-threshold, separating expansion from contraction in business activity, for the first time since April 2019.
October’s upturn came on the back of increases in output and new orders. Manufacturing production expanded at the strongest pace since December 2016, while new orders rose for the first time in over two years amid firming demand due to the easing of Covid-19 restrictions. Moreover, while firms continued to cut staff levels in October, the rate of job shedding was the softest in seven months. On the price front, input cost inflation hit a six-month high, largely reflecting FX weakness and issues with the supply of materials. As a result, firms raised their output charges at the fastest rate since February. Lastly, sentiment in the sector remained at September’s seven-month high, as firms expected a rise in output in the coming twelve months.
Commenting on the outlook for the South African economy, Andrew Harker, economics director at IHS Markit, reflected:
“The latest data suggest that GDP could grow again during the final three months of 2020, following an anticipated 'mechanical' rebound in the third quarter. That said, caution is provided by the situation in other parts of the world where a second wave of the virus has occurred. South Africa will therefore need to keep COVID-19 suppressed if the current recovery is to be sustained.”
Author: Hanna Andersson, Economist