Eskom Is Wreaking Havoc On South African Businesses – Indices Hit 11-year Lows

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined for a fourth consecutive month to reach 44.3 in February 2020, the financial services group said on Monday (2 March).

The 0.9-point decline brought the index to its lowest level since the second half of 2009, when the economy started to recover from a deep recession triggered by the global financial crisis.

While four points below the average reading in 2019, the current level is still about six points above the lowest point reached in 2009, Absa said.

Four of the five sub-components of the headline PMI declined in February, with only the supplier deliveries index increasing compared to January, it said.

This index is also the only one above 50 points, with all others pointing to a worsening in conditions.

The business activity and new sales orders indices, in particular, deteriorated sharply after recording improvements in the previous month, Absa said.

Both indices reached almost 11-year low levels. Some respondents flagged load-shedding as a reason for the decline in activity. Weakness in external demand also seemed to have contributed to the drop in sales orders. With business activity remaining below the neutral 50-point mark for a seventh consecutive month, the employment index nudged even lower in February.

Eskom’s announcement of a high likelihood of load-shedding during the next 18 months likely contributed to the further deterioration in sentiment regarding business conditions going forward. The index tracking expected business conditions in six months’ time fell to the lowest level since 2009.

The current level of 38.7 index points is less than half of the index value recorded in February 2018 at the peak of ‘Ramaphoria’.

Continued concerns regarding the strength of the global economy likely also contributed to the souring in sentiment as respondents noted a decline in export sales for a fourth consecutive month.

Business Activity

“After a fairly solid improvement in January, the business activity index slumped lower in February. The index fell by 10.9 points to reach 33.7, the lowest level since early 2009.

“Some of the respondents highlighted repeated power interruptions as the reason for activity weakness,” Absa said.

Employment

The employment index edged down further after reaching an almost six-year low in January. “The sustained weakness in the employment indicator corresponds with recent announcements of planned retrenchments in the factory sector – and wider economy,” Absa said.

“The employment picture is unlikely to turn around without a sustained improvement in demand pulling activity higher.”

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