The release this week of SA’s purchasing manager indices for April will give the first indication of how badly business activity has been affected by the five-week national lockdown. Evidence from other countries suggests that the data will plunge to record lows.
In March, as consumer demand began to evaporate with the onset of the coronavirus pandemic, the IHS Markit purchasing managers index (PMI) for the SA economy plunged to an all-time low of 44.5 index points, from 48.4 in February.
But if the experience from around the world is anything to go by, the effect of the lockdown evident in the April release, which is due out on Wednesday, could be staggering.
For instance, the flash IHS Markit Eurozone Composite PMI slumped to a historic low of 13.5 index points in April, significantly below the previous trough of 36.2 points registered during the global financial crisis.
Economists also expect a severe contraction in the Absa manufacturing PMI, which has been languishing in negative territory for the past eight months. It will be released on Monday.
April manufacturing PMI data in countries experiencing lockdowns has shown a dramatic decline, many to record lows, including the UK (from 47.8 in March to 32.6 in April) and Australia (from 49.7 to 44.1).
In March, SA’s manufacturing PMI rose surprisingly to 48.1 from 44.3 the previous month. However, this was partly because slower delivery times artificially raised the supplier deliveries subindex. Usually, delayed deliveries signal that suppliers are busier than normal, a positive indicator. However, during the pandemic it mainly reflects negative disruptions to global supply chains.
BNP Paribas economist Jeff Schultz expects the April index to drop sharply to 44 points, if not lower, on plunging business activity and new sales orders.
FNB chief economist Mamello Matikinca-Ngwenya also expects SA’s stringent lockdown measures to have taken their toll.
“In addition, constrained international demand and the adverse implications of transport restrictions for non-essential goods are also expected to have been significant impediments,” she says.
New-vehicle sales for April are also due out on Monday. Having plunged by almost 30% year on year in March, the April reading is likely to be down 80-90% year on year, reflecting the closure of car dealerships and near complete cessation of economic activity due to the lockdown.
Any new-vehicle sales that did occur in April were likely of light commercial vehicles needed to provide essential services in the health sector, says Matikinca-Ngwenya.
Manufacturing capacity utilisation, which is published quarterly by Stats SA, was scheduled for release on Thursday, May 7, but has been pushed out to May 12.
Stats SA has explained that though measuring economic data for this period is crucial, numerous releases will be delayed as large parts of the economy are closed and only limited numbers of its staff are able to work remotely.
FNB estimates that at alert level 4, production in the economy will be at about 61% of its full capacity, increasing to about 78% and 91% under levels 3 and 2 respectively. It doesn’t expect all sectors to be fully operational before September 2020.
On Friday, the Reserve Bank will update its net reserves and balance sheet position.
Schultz expects this to be the market focus of the week, not because revaluation adjustments in the gold price are likely to see a $300m jump in SA’s net reserves to $45.1bn, but because it should provide an indication of how active the Bank was in the secondary bond market during April.
In March, the Bank spent just R1bn on purchases to restore liquidity to the bond market given significant Covid-19-related capital outflows.
BNP Paribas thinks the Bank could buy up to R60bn worth of government bonds by year-end if necessary. This would raise the Bank’s total asset base to about 25% of GDP from just under 20% currently.