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European Lockdowns Affect SA Export Activity

3 December 2020 – Manufacturing production slowed down in November as the reintroduction of Covid-19 lockdowns in Europe affected South Africa’s export activity.

Absa yesterday said that its Purchasing Managers’ Index (PMI), declined to 52.6 index points from a record 60.9 points recorded in October.

The decline came after three consecutive upward moves and brought the index to the lowest level since July.

Though the reading remained at pre-pandemic levels with an above 50-point reading that separates contraction from expansion, the degree of upturn lost further impetus though activity.

Absa said that while still signalling an improvement in business conditions, the contraction in the sentiment suggested that the manufacturing sector’s recovery was starting to lose momentum.

“This was partly driven by a renewed decline in export sales possibly linked to lower activity in Europe due to renewed Covid-19 lockdowns,” Absa said.

“This was to be expected as output levels for many sub-sectors are nearing pre-pandemic levels and will need sustained demand growth to fuel a further output expansion.”

New sales orders index dipped back below the neutral 50-point mark for the first time since May, in part driven by a renewed decline in export sales which may be linked to lower activity in Europe due to the renewed Covid-19 lockdowns.

Absa said concerns about Covid-19 developments in South Africa had also likely dampened confidence amongst manufacturers. The bank said the sentiment was expected to remain subdued in the next six months.

The indicator tracking business conditions in six months’ time dipped for a second month to 52.7 index points and is now about 12 points below the level of just two months ago.

While positive news regarding vaccine developments may result in an improved global growth outlook over the medium term, the next six months will remain highly uncertain.

The employment index also eased after it failed to breach the neutral 50-point mark in its recovery from the lockdown-induced slump in April.

Investec’s Kamilla Kaplan said lower production requirements had alleviated any pressure on capacity which manifested in an increased rate of retrenchments in November.

“The drop in workforce numbers was likely also linked to lower backlogs of work,” Kaplan said.

“Overall, the PMI suggested that the sharp rebound in manufacturing activity in the third quarter had given way to slowing momentum during the fourth quarter.” Source (Business Report)