A gauge measuring South African manufacturer sentiment has slumped to the lowest level since the strictest months of the Covid-19 lockdown in 2020, as demand and activity deteriorated sharply. Absa Group Ltd.’s purchasing managers’ index, compiled by the Bureau for Economic Research, fell to 43.6 in January from 50.9 a month earlier, the Johannesburg-based lender said in an emailed statement on Thursday. That’s the lowest since May 2020 and below the median of three economists’ estimates in a Bloomberg survey of 50, indicating a contraction in an industry that accounts for about 15% of South Africa’s gross domestic product.

According to the lender, ‘Outside of the global financial crisis in 2008-09 and the pandemic-induced lockdown period of 2020, the index has only fallen to this low level a handful of times,’ reflecting a very poor start to the year for domestic manufacturers.

The main contributors to the drop in the index were the business activity, new sales orders, and inventories sub-indexes. The decline in the business activity index to its lowest level since July 2021 came even as there were fewer power cuts in January, compared with most of 2023, the lender said. The plunge was likely due to a drop in new sales orders driven by a ‘sharp decline in demand’ and a ‘lack of materials and goods required in the production,’ it said.

The International Monetary Fund has almost halved its forecast for South African economic growth this year, warning that logistical challenges are constraining activity and acting as a drag on the southern African region.

Still, respondents turned more optimistic about business conditions going forward. The index tracking expected business conditions in six months’ time rose to 58.7 from 57.9 in December, suggesting respondents expect conditions to be better than the current dismal environment, not better relative to ‘normal’ or long-term business conditions.