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The recent power crisis has had a direct effect on manufacturing activity as well as optimism about future business conditions. The seasonally adjusted Absa Purchasing Managers' Index (PMI) fell for a third consecutive month in March. The PMI sub-index measuring expected business conditions in six months’ time fell to 59.6 in March from 65.9 in February.   

Manufacturing continues to decline

“Weaker demand likely contributed to a further dip in the business activity index to 41.7 points. Output was likely also affected by consecutive days of (daytime) load-shedding, hampering production for factories without alternative power sources,” Absa said.

The new sales orders sub-index fell by 0.5 points to reach 42.4 in March. The results indicate that demand was weaker in the first quarter of 2019 than during the fourth quarter of 2018, which is mainly as a result of a deterioration in export performance, while domestic demand conditions also remained poor.

“Exporters are faced with slower global growth, particularly in the Eurozone, which is a key trading partner. A preliminary reading of the Eurozone manufacturing PMI fell to the lowest level since 2014 in March,” the report states.

Weaker demand was one of the contributing factors to the dip in the business activity sub-index. The new sales orders index also dropped, falling by 0.5 points to 42.4, as did the employment sub-index. This declined by 5.4 points to reach 42.7 in March. After five months of decelerating cost increases, the purchasing price sub-index increased to 74.3 in March.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Marique Kruger has said that the rate of contraction of the PMI since the beginning of the year is worrisome. Investec economist Kamilla Kaplan told the media that cost pressures will likely intensify in coming months as a result of the 13.9% electricity tariff increase that came into effect on April 1, and the sizeable fuel price increases of R1.31/litre for petrol and 82c/litre for diesel in April.

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