Mozambique: PMI strengthens to 13-month high in July – Standard Bank

Login

Register

http://www.clubofmozambique.com/

Mozambique: PMI strengthens to 13-month high in July – Standard Bank

8:59 CAT | 07 Aug 2023

File photo: Lusa

Key findings

Fastest growth of output and new orders since mid-2022
Employment growth moderates amid pay pressure

Inventories fall at quickest rate since January

Mozambique’s private sector economy began the second half of 2023 on a strong footing, according to the latest PMI™ survey data, which signalled the strongest improvement in business conditions for just over a year. Output growth accelerated to a sharp pace, driven by robust demand and rising customer numbers. The upturn encouraged a stronger round of selling price increases, supporting firms’ margins at a time of modest cost pressures.

However, businesses struggled to convert sales growth into staffing additions, as recent wage pressures hit cashflows and stifled recruitment. Similarly, input stocks were depleted despite a renewed increase in purchasing, as weak procurement over the second quarter forced firms to use their holdings to support output.

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

The index posted above the 50.0 no-change mark for the sixth month running, rising from 51.3 in June to 51.9 in July. The reading was the highest recorded since June 2022 and signalled a moderate improvement in the health of the private sector.

Companies often based improving conditions on a sharp expansion in new order intakes, where the rate of growth picked up to its strongest since May 2022. Survey panellists typically cited an increase in demand and greater customer orders. Upturns were seen across most of the private sector, the exception being construction where new work decreased for the third month running.

Higher new order inflows translated into an increase in output at the start of the third quarter, one that was the most marked in just over a year. The rise meant that companies were generally able to stay on top of workloads, contributing to a slight drop in outstanding orders.

Greater demand levels encouraged firms to raise their output prices more quickly in July. The overall increase in charges was modest, but nonetheless the fastest recorded since September last year. Some firms commented on efforts to pass through higher purchase prices to customers, which rose to the greatest extent for three months.

Mozambican businesses reported only a fractional rise in employment numbers in July. Despite aiming to recruit more staff to fulfil order books, pay pressures and cashflow issues forced some firms to reduce their headcounts. Notably, this helped to ease wage cost inflation to a five-month low.

At the same time, weaker purchasing activity over the second quarter led firms to withdraw from their stocks for the second month running in July. In fact, the drop in inventories was the strongest since the start of 2022, albeit modest overall. In response, firms upped their input spending for the first time in four months, but only fractionally as some panellists encountered cashflow issues.

Average lead times on inputs continued to shorten during July, although the rate of improvement eased substantially from June’s recent high. There were reports that improved material availability had supported supply chains, but strikes had led to some delays.

Lastly, Mozambican firms remained confident about the year ahead in July, with 45% of respondents predicting growth of activity amid rising new business. Optimism waned, however, and was the lowest since February.

Comment

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

“The Standard Bank Mozambique PMI continued to rise in July, maintaining a straight two-month increase and reaching a 13-month high of 51.9, from 51.3 in June. This mainly reflects a continued acceleration of growth in new orders and output.

“Having printed above the 50-benchmark level, the July PMI suggests that this economy continues to experience growth resilience and a gradual recovery in economic activity.

“The PMI suggests softer month on month performance in agriculture and construction, with the latter most likely impacted by tighter monetary conditions and intermittent FX liquidity and fiscal pressures.

“While there seems to be some growth resilience in the services economy, we would not be surprised if this starts to wane due to ongoing corrections in the government wage bill, which was cut twice this year, alongside tight monetary policy, which tends to impact the economy with a lag.

“Per our June edition of the African Markets Revealed (AMR), we note that GDP growth outside extractives remains softer than 2022 levels, due to tighter financing conditions. Nonextractive GDP growth eased to 2.7% y/y in Q1:23, from an average of 3.9% y/y in 2022.”

Sources: Standard Bank, S&P Global PMI.

Source: Standard Bank Mozambique PMI™