Mozambique PMI falls to two-year low as staff levels start to decline

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Mozambique PMI falls to two-year low as staff levels start to decline

12:01 CAT | 08 Feb 2024

File photo: Lusa

Employment numbers drop for first time since February 2022

Sharper declines in output and new orders

Lower purchasing keeps cost burdens settled

Mozambique’s private sector economy contracted for the third month in a row in January and at the sharpest pace in exactly two years, according to the latest PMI survey findings. Output and new order trends continued to worsen, leading to the first drop in employment since February 2022. Input purchasing also fell sharply, which helped to keep cost pressures down and selling prices settled. Despite the downturn in activity, firms remained upbeat about output levels in the coming year as sales, profits and investment were all expected to rise.

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 registered below the 50.0 mark for the third straight month in January, dropping to 47.8 from 48.8 in December. The reading was the lowest recorded since January 2022, but signalled a moderate deterioration in the health of the private sector economy.

Output levels at Mozambican companies decreased at a quicker rate at the start of the year. The contraction was largely due to a weakening of order books, as the survey data also signalled back-to-back declines in sales. Respondents often noted receiving fewer new orders as demand conditions worsened. According to sector data, lower new business in the construction, manufacturing and service sectors contrasted with uplifts in agriculture and wholesale & retail.

Contractions in output and demand tipped employment levels into decline in January, as the latest data signalled the first fall in staffing levels in almost two years. That said, the overall rate of job shedding was only fractional. Despite staff cuts, businesses were able to keep outstanding work volumes down for the eleventh month running.

Reduced new orders led Mozambican firms to purchase fewer inputs in January. Purchasing activity fell for the fifth straight month, with the pace of reduction quickening to the second-fastest since May 2020. Lower demand, combined with greater vendor efficiency, supported a sharp improvement in delivery times that was the strongest seen in over a year-and-a-half.

The drop in input demand helped to keep price pressures relatively stable at the start of 2024. Purchasing costs were little changed since the previous month, despite rises in some raw material prices. Similarly, a reduction in staffing meant that labour costs were also settled, with the latest data marking the joint-slowest increase in almost two-and-a-half years (level with that recorded in November 2023).

As a result, average prices charged by Mozambican firms rose only marginally in January. The pace of inflation was roughly the same as December’s seven month low, with price increases confined to the service economy.

Looking ahead, output expectations for the upcoming year remained strongly positive in January. That said, the degree of optimism weakened slightly to a four-month low and was below the series trend. Where companies expect an increase in activity, panel comments mostly related this to hopes of greater sales, profits and investment.

Comment

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

“The Standard Bank Mozambique PMI fell to 47.8 in Jan, a two-year low, from 48.8 in Dec, signalling a contraction in economic activity for the third month in a row. This mainly reflect declines in output, new orders, employment, and purchases, all pointing to subdued aggregate demand. PMI prints below the 50-benchmark suggest month-on-month contractions in economic activity.

“Consistent with subdued aggregate demand, and a stable metical, companies reported muted cost pressures, which helped keep sales prices relatively stable. Future expectations continued to signal prospects of an increase in investment, sales and profits, most likely associated with the resumption this year of on-the-ground liquified natural gas (LNG) investments in Cabo Delgado.

“The Banco de Moçambique cut its main monetary policy interest rate, MIMO, by 75 basis points to 16.5% last month, from 17.25%, signalling the beginning of an easing cycle for monetary policy, permitted by the decline in inflation. We retain our year-end inflation forecasts of 5.9% y/y for 2024 and 6.3% y/y for 2025, up from 5.3% y/y in 2023.

“Prudent monetary policy easing implies financing conditions remaining tight. As a result, we retain our Jan edition of the African Markets Revealed forecasts of GDP growth decelerating to 4.6% y/y this year and 3.8% in 2025, even considering the resumption of LNG investment, based on persistent government debt “.pressures and intermittent FX supply.”

Source: Standard Bank Mozambique