Load shedding is getting better – but it’s not enough

The outlook for load shedding is getting better, but global events are negatively affecting business expectations.

Following a disappointing end to the third quarter (Q3), the Absa Purchasing Managers’ Index (PMI) also had a weak start to Q4.

The headline index fell from an upwardly revised 46.21 in September to 45.4 in October.

The seasonally adjusted business activity subindex was the biggest drag on the headline PMI, decreasing 2.8 points to 40.3.

“Given that the frequency and intensity of load shedding eased notably in October, the weak performance from the activity index is perplexing,” the Bureau for Economic Research (BER) said.

“It is now back to the July 2023 level when prolonged disruptions on the N3 transport corridor most likely resulted in a (temporary) shortage of inputs. These transport issues contributed to weak manufacturing output.”

Although the BER is not sure why activity declined in October, it does correspond with the continued weak readings on demand. The PMI new sales order index was below 40 index points for the second month in a row.

As the PMI export index improved in October, the weaker demand for new sales orders largely reflects the weak domestic demand for manufactured goods.

“On the consumer front, elevated relative (food and fuel) prices, as well as restrictive borrowing costs, are depressing demand for local manufactured goods,” the BER said.

Constrained mining output due to soft coal and PGM prices and inefficient rails and ports are also expanding the disappointing performance of the PMI production indicator.

Future expectations also took a major hit in October, with the index measuring business conditions in six months down by over 12 points to 43.4. Despite domestic improvements, global factors are weighing heavily on confidence.

“With key units of the Kusile power station resuming operations earlier than expected and the associated reduced load-shedding in October, adverse global events seem to have driven the poor expectations reading,” the BER said.

“Besides poor activity data in the Eurozone and the UK, major SA export markets, one can add the outbreak of war between Israel and Hamas in October. The expectations reading also declined sharply in February 2022 when Russia invaded Ukraine.“

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