Absa’s Purchasing Managers’ Index (PMI) edged up by 1.6 index points to 49 in March from 47.4 in February, suggesting manufacturing activity is yet to feel a significant negative effect due to the Middle East war, which has strangled global oil supply.
The increase in the PMI, sponsored by Absa and compiled by the Bureau for Economic Research (BER), was primarily supported by a marginal rise in the business activity index and a sharp increase in the supplier deliveries index.
“The spike in supplier deliveries should be interpreted with caution. Given the continued weakness in new sales orders, the rise in this index … is unlikely to reflect stronger demand,” the BER said.
“Instead, it most likely points to ongoing supply chain disruptions and logistical constraints.
“These challenges may intensify if global shipping routes are further affected by geopolitical tensions, most notably a sustained closure of the Strait of Hormuz.”
The March survey showed costs had already increased in response to the US and Israel’s war against Iran, even before the fuel price increases for April were announced by the department of mineral and petroleum resources on Tuesday.
The purchasing price index surged by 20.7 points to 75.8, its highest level since early 2023 and the largest increase on record since September 1999. This was due to a weaker rand and higher international oil prices, particularly for oil-derived inputs.
With fuel price increases coming into effect, input costs will stay elevated, placing additional strain on manufacturers’ profitability and potentially contributing to broader inflationary pressures in the economy, the BER said.
Last week, the South African Reserve Bank (Sarb) kept its benchmark repo rate at 6.75% — despite having been widely expected to cut it by 25 basis points before the Middle East war broke out on February 28.
Governor Lesetsa Kganyago cited inflation risks in coming months emanating from higher oil prices, and hinted at a possible rate hike later in the year.
Another notable development in March for purchasing managers — who buy materials and services for companies — was the sharp decline in the expected business conditions index, which fell by 22.9 points, the largest drop on record.
“This suggests a significant deterioration in business confidence among purchasing managers. Many respondents expressed concern about the potential impact of the ongoing Middle East conflict on both costs and demand,” the BER said. - Business Day
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