South African factory sentiment gains as rate cuts get under way

Absa Group’s Purchasing Managers’ Index rose to 52.8 in September from 43.6 a month earlier.

South African manufacturers’ sentiment improved to a five-month high, amid optimism about better business conditions as central banks at home and abroad began lowering interest rates.

Absa Group’s Purchasing Managers’ Index rose to 52.8 in September from 43.6 a month earlier, the Johannesburg-based lender said on Tuesday, though it noted the gauge has been volatile in recent months.

ADVERTISEMENT CONTINUE READING BELOW

Still, the increase took its average over the third quarter to 49.6 — just below the 50 threshold that demarcates expansion or contraction — compared with 47.9 in the second quarter.

In addition, the index tracking expected business conditions in six months’ time increased sharply to 70.8 points in September from 61.3 in August. That was the highest reading since January 2021, “indicating strong optimism about improving business conditions,” Absa said in a statement.

The improvement echoes other signs of a brighter South African outlook after the formation of a broad governing coalition following May elections, in which the African National Congress lost its majority for the first time since 1994.

Deputy President Paul Mashatile, leading an investor roadshow in the UK, told Bloomberg Television on Monday that the so-called government of national unity was focused on promoting economic growth and employment. South Africa’s economic growth over the past decade has averaged less than 1% a year.

“We think that by next year we could be growing about 1.5%,” he said. “We want to grow the economy, particularly through infrastructure investments, build new roads, dams, new railway lines.”

Absa said that a gauge of new sales orders surged by 18.5 points in September to 53.1, with both domestic and export demand showing signs of improvement.

ADVERTISEMENT: CONTINUE READING BELOW

“On the local consumer front, the recent interest-rate cut adds to the expectation of a possible more positive demand story going forward,” it said.

The South African Reserve Bank lowered interest rates by 25 basis points to 8% on September 19. It’s move followed a 50 basis-point cut by the Federal Reserve the day before, as the US central bank signaled it was beginning an easing cycle.

The country’s fuel prices will drop to the lowest level in more than 2 1/2 years on October 2, boding well for the inflation outlook and sentiment.

© 2024 Bloomberg

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.