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An index tracking expected business conditions in South Africa’s manufacturing industry rose to an 11-month high in January, with purchasing managers expecting improved global economic conditions to outweigh the effects of intense power outages and other domestic headwinds.
The gauge, which measures expected business conditions in six months’ time, rose to 63.8 from 54.9 in December, Absa said Wednesday.
The increase, likely driven by better expectations for the global economy, is encouraging “given the poor potential for the domestic economy to accelerate demand growth for factory goods,” the lender said. “There are more signs of the European economy avoiding a near-term recession and the reopening of the Chinese economy providing a further boost to global demand.”
South Africa is suffering its worst bout of electricity rationing yet, with Eskom implementing rolling blackouts on 205 days last year and every day so far in 2023. The outages, which are needed to protect the grid from collapse when Eskom’s plants can’t meet demand, are curbing activity in Africa’s most industrialised economy.
The central bank last week cut its economic growth forecast for 2023 to 0.3% from 1.1%. Its projection assumes the blackouts, known locally as loadshedding, will shave two percentage points off output growth. Economists in a Bloomberg survey predict there’s a 45% chance of the nation slipping into a recession this year.
The overall purchasing managers’ index dipped to 53 from 53.1 in December. While an outcome above 50 signals expansion, “continued activity growth would require a sustained improvement in demand and most likely a move to less intense stages of loadshedding,” Absa said.
The manufacturing sector accounts for about 14% of South Africa’s gross domestic product.
