South African factory sentiment rebounds as virus curbs ease

Signalling a strong start to the year.
Image: Bloomberg

A gauge measuring South African manufacturing sentiment recovered after a loss of momentum in December as demand for goods increased and the fallout from a surge in coronavirus infections eased, signalling a strong start to the year.

Absa Group’s purchasing managers’ index, compiled by the Bureau for Economic Research, rose to 57.1 in January, from 54.1 a month earlier, indicating an expansion in an industry that accounts for 13% of gross domestic product.

The improved reading comes as restrictions aimed at slowing the spread of the pandemic were eased further in December and several trading partners lifted travel bans on South Africa after it exited a fourth wave of Covid-19 infections that ensued following the onset of the omicron strain.

All the major subcomponents of the index excluding supplier performance rose in January. The new sales orders sub-index climbed to 55.5, from 51.7, while the sub-index measuring business activity climbed by almost eight points.

Purchasing managers were also more optimistic about the coming months. A gauge tracking expected business conditions in six months’ time jumped to an almost four-year high of 71.3 points, more than ten points above last year’s average reading, Absa said.

While it was difficult to pinpoint the reasons for the stark improvement, it may be due to expectations that like in the fourth wave, future virus surges may not come with strict restrictions on activity that limit output growth, Absa said.

“With omicron cases also peaking, or already having peaked, in many of South Africa’s trading partners, it could also be expected that export growth improves going forward as demand from the affected services sectors normalises,” the lender said.

© 2022 Bloomberg

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