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An indicator measuring business confidence in South Africa's manufacturing industry recovered to its highest level in about two years in April, due to the first month without power outages since January 2022 and improved domestic demand.
Absa's Purchasing Managers' Index, compiled by the Economic Research Bureau, moved out of contraction territory in April, rising to 54 from 49.2 the previous month. Analysts surveyed by Bloomberg had expected the index to approach 50.5.
The overall index rose to 57.2 from 44.5 in the previous month, mainly supported by improved business activity and domestic orders.
The lender said, “It is highly likely that the no-load period of 30 days or more supported business conditions in the factory sector.'' “In this regard, Eskom has announced that there is continued improvement in electricity production from coal-fired power plants, sufficient emergency reserves and a decline in demand for Eskom electricity.”
South African businesses have been battling almost daily load shedding for more than a year as Eskom has been unable to meet demand due to lack of maintenance and aging power plants.
Still, manufacturers are less optimistic about future business conditions, with Eskom warning that rolling blackouts are likely to return in the winter season starting in June. The index showing business forecasts six months from now fell to 55.7 in April after rising to 62.1 in the previous month.
Absa said: “Expectations that load shedding will return may explain this, even though there is currently no disruption.” “There may also be concerns that interest rate cuts in countries such as South Africa will be smaller than previously expected.
The central bank said last week in its semi-annual monetary policy review that South Africa's path to lower inflation is less uncertain and has been “setback” by slower-than-expected food disinflation and fluctuations in fuel prices. said. This could lead policymakers to keep interest rates higher for longer than previously expected, the paper said.
At its rate-setting meeting in March, the Reserve Bank kept the benchmark interest rate unchanged at 8.25%, the highest level in 15 years, for the fifth consecutive meeting.
