Power cuts hit economy hard

The worst bout of load-shedding so far hit the economy hard last month‚ causing manufacturing activity to plunge to a four-year low‚ a key index showed this week.

Though public holidays also affected the sector‚ the frequency of the power outages had added to its woes.

The Kagiso purchasing managers’ index (PMI) – which gauges activity in manufacturing – fell to 45.4 points last month from 47.9 points in March‚ mainly because of a decline in business activity. A level below 50 indicates a contraction. The index has been below 50 for three consecutive months.

The severity of the load-shedding had affected manufacturing production more than any other factor‚ Manufacturing Circle executive director Coenraad Bezuidenhout said.

“Manufacturers would have been impacted severely by electricity outages‚ particularly by the number of stage 3 outages‚” he said.

Heavy industries are required to stop production equipment during stage 3 load-shedding‚ which Bezuidenhout said was “expensive to run and for which optimal operating conditions are impossible to reach under stop-start conditions”.

Anticipated strikes in the gold mining and public sectors‚ and uncertainty over SA’s continued inclusion in the African Growth and Opportunity Act by the US government were also factors that could have affected manufacturing activity‚  Bezuidenhout said.

The PMI suggested that production in the manufacturing sector began the second quarter on a slow footing‚ which would slow economic growth.

The decline also indicated that a quick recovery was unlikely for the manufacturing sector‚ said Kagiso Asset Management head of research Abdul Davids.  He said that conditions in the sector could “worsen further” in the second quarter after possibly contracting in the first quarter.

Investec chief economist Annabel Bishop, said actual production could have contracted about 3% on a seasonally adjusted and annualised basis in the first quarter.

Barclays Africa economist Miyelani Maluleke,  said though the PMI data could have diverged from actual manufacturing output‚ last month’s figure was an “important early indicator” of the magnitude of the effects of load-shedding on factory output at the start of the second quarter.

And it was weaker domestic demand rather than global appetite that contributed the most to a decline in new sales orders – the PMIs of SA’s major trading partners remained above the 50 level last month.  The eurozone recorded a PMI at 52 points‚ while the US’s ISM manufacturing index was at 51.5 points.

In releasing the eurozone PMI‚ London-based Markit said the region’s manufacturing production had risen for the 22nd consecutive month.  It said that although the rate of increase had eased slightly‚ it had remained above the average for the first quarter of the year.

Bezuidenhout said feedback from their members indicated that the recent wave of xenophobic attacks might also have affected local manufacturing sentiment.   SA’s PMI also showed up several challenges for the manufacturing sector. The business activity sub-index fell four points to 40.6 – its lowest level since July 2011. — BDLive