Mozambique: Business conditions deteriorate in November amid protests – Standard Bank PMI

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Mozambique: Business conditions deteriorate in November amid protests – Standard Bank PMI

5:08 CAT | 04 Dec 2024

File photo: Lusa

Key findings

Output drops at sharpest rate in nearly three years

Weaker sales hits staffing and purchases

Average input costs fall for first time since January

The Mozambique PMI® signalled a decline in the private sector economy in November, as output and order books were widely curbed by protests and strikes. The downturn caused firms to make renewed cuts to staffing numbers and procurement.

Concurrently, optimism for future business activity receded. Supply chains were also hit, with the latest survey data signalling a solid lengthening of input delivery times. Stocks of purchases subsequently fell solidly. More positively, reduced buying and a subdued jobs market helped to bring down expenses.

The headline figure derived from the survey is the Purchasing Managers’ IndexTM (PMI). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

The headline PMI slipped below the 50.0 neutral threshold for the first time in seven months in November. At 48.4, down from 50.2 in October, the index signalled a modest contraction in the Mozambican private sector economy.

Overall business activity dropped at the quickest pace since January 2022. The decline was widely associated by survey respondents with protests and strikes following the general election, which led to both reduced capacity and weaker customer demand.

Similarly, the latest survey data revealed a solid decline in new business volumes. All five sectors covered by the survey saw sales decrease, with the most pronounced decline in the construction industry. The overall downturn ended a prior nine month sequence of new order growth.

With business conditions weakening, and as part of measures to control costs, companies reduced their business capacity during November. Though marginal, jobs were shed at the fastest rate since March 2021. This contributed to the first decrease in salary costs in over three years.

Similarly, input purchases fell at a solid pace that was the sharpest seen for ten months, which also led to a notable drop in inventories. In fact, the contraction in stocks was the greatest ever observed except for those seen during the second quarter of 2020.

Disruption to supply chains was also observed in November. As well as protests, many panellists reported that a border closure with South Africa triggered product shortages and vendor delays. Notably, the respective seasonally adjusted index saw its largest monthly decrease in the survey’s history (down 6.8 points from October).

Total purchase costs fell for the first time in a year in November, as businesses indicated a reduction in supplier charges due to weak demand. With staff costs also down, overall business expenses fell at a moderate pace that was the sharpest since February 2022.

Selling prices continued to rise, but only marginally. While supply shortages pressed some firms to raise their charges, weak demand undermined pricing power elsewhere.

Looking ahead, Mozambican firms were generally hopeful of activity increasing over the next 12 months. The degree of optimism softened in November, however, and was the lowest in just over four years. Where optimism was seen (at nearly a third of surveyed firms), this was linked to expectations of higher recruitment, new sales and increased publicity.

Comment

Fáusio Mussá, Chief Economist – Mozambique at Standard Bank commented:

“The Standard Bank Mozambique PMI fell to a seasonally adjusted tenmonth low of 48.4 in November, after easing to 50.2 in October. Dropping for the third month running in November, the PMI data showed monthon-month contractions in output, new orders, employment and stocks of purchases, plus a lengthening of supplier delivery times.

“The PMI printing below the 50 neutral level suggests a deterioration in private sector business conditions, on the wake of post-election tension that may prove protracted. Business sentiment, as measured by the future business expectations sub-index, declined for the third month running, with respondents expecting softer growth in output over the next 12 months.

“PMI data suggests muted inflation pressures. Despite some supply disruptions amid protests, there has been weak demand and stable foreign exchange rates, which limits price pressures. This allowed the Banco de Moçambique (BOM) to cut the MIMO policy rate at the November MPC meeting by 75 basis points (bps) to 12.75%, bringing cumulative cuts since the beginning of the year to 450 bps, as the BOM see the USD/MZN pair stability helping keep inflation under control.

“Notably, downside risks to the economy have increased, considering the prospect of protracted post-election tension, relentless fiscal pressures and growing foreign exchange supply/demand imbalances. We retain our forecasts of softer GDP growth in 2025 of 3.3% y/y and inflation rising towards 5.7% y/y by the end of 2025.

“This implies that even in the case of BOM continuing to cut the MIMO policy rate, financing conditions will likely remain tight, manifest in high cash required reserves (CRR), and exacerbated by the build-up in government goods and services arrears as well as delays in VAT reimbursements, all limiting private sector credit growth and subduing aggregate demand.”

Source: Standard Bank Mozambique PMI