The decline in May was the fourth consecutive month that the index “signalled a deterioration in business conditions”, Absa said. It also takes it further into negative territory, as 50 is the neutral level. 

“In all, the average index level of business activity in the first two months of the second quarter is below the first-quarter average. This suggests that the sector may once again detract from quarterly GDP growth after an expected expansion in the first quarter,” Absa said.

Economists expect that the economy grew a very moderate 0.2% in Q1 of this year, according to the median estimate of a Bloomberg forecast in mid-May, after contracting 1.3% in the final quarter of 2022. That would at least avert a recession, defined as two consecutive quarters of economic contraction.

The PMI is now indicating that any growth in the manufacturing sector in the first three months of this year has now faded and that production may now be in decline in the face of the surge in power cuts.

The outlook among purchasing managers in the sector is bleak, to say the least.

“The index tracking expected business conditions in six months’ time fell to 43.7 in May, from 51 in April. This is the most pessimistic respondents have been about the near-term outlook since the strictest phase of South Africa’s Covid lockdown three years ago,” Absa said.

That’s quite a shock. The outlook is worse now than it was when the economy was imploding under the weight of the “Great Lockdown”, and the unfolding power crisis is almost entirely to blame.

“Eskom confirming earlier concerns about the possibility of higher stages of load shedding during winter likely contributed to the souring in sentiment,” Absa noted.

Indeed, Stage 8 will take the industry and wider economy into murky territory.

The employment index was changed at 45.6. With an unemployment rate of almost 33%, it is deeply concerning that it remains stuck well below 50. Jobs are simply not being created in this bleak environment.  

The PMI is the latest indicator to suggest that the economy is simply failing to grow, or at least at anything approaching a meaningful rate. If the power cuts reach Stage 8 – or worse – this month, expect the June index to fall deeper into negative territory. DM