S. Africa Power-Cut Plans Drag Factory Sentiment to Decade Low

(Bloomberg) --

Sentiment in South Africa's manufacturing industry fell to the lowest level in more than a decade in February as the prospect of continued power cuts and concern about the global economy weighed on confidence.

That makes the recovery of an economy that the government estimates expanded at the slowest pace in 10 years in 2019 even more challenging.

Absa Group Ltd.'s Purchasing Managers' Index, compiled by the Bureau for Economic Research, dropped to 44.3 from 45.2 in January, the Johannesburg-based lender said in an emailed statement Monday. That's the lowest level since August 2009. The median estimate of three economists in a Bloomberg survey was 45.1.

Rolling blackouts weighed on Africa's largest economy in the final quarter of last year. The likelihood of power outages continuing for the next 18 months, as announced by the head of state-owned utility Eskom Holdings SOC Ltd., dragged down four of the five main subcomponents of headline PMI in February. The business activity subindex dropped to 33.7 from 44.6 and that dragged down the employment subindex. New-sales orders slumped to 31.2 from 42.5.

Read more: Eskom Warns South Africa to Brace for Additional Power Cuts

Some respondents flagged electricity blackouts as a reason for the decline in activity, Absa said. Weakness in external demand also contributed to the drop in sales orders, according to the lender.

The manufacturing PMI has been below 50 for all but nine months of the past three years, indicating contraction in an industry that accounts for about 13% of South Africa's gross domestic product.

There's unlikely to be a turnaround soon, with the subindex tracking expected business conditions in six months' time falling to 38.7 from 42.5. That's the lowest level since February 2009 and the gauge is now at less than half of the level recorded in February 2018, when euphoria about Cyril Ramaphosa's ascent to the presidency peaked.

--With assistance from Simbarashe Gumbo.

To contact the reporter on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net

To contact the editors responsible for this story: Benjamin Harvey at bharvey11@bloomberg.net, Paul Richardson, Gordon Bell

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