Output growth accelerates to 33-month high – Standard Bank Mozambique PMI™

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Output growth accelerates to 33-month high – Standard Bank Mozambique PMI™

9:11 CAT | 05 May 2022

File photo: Lusa

Key findings

Strong increase in new orders

Purchasing and hiring growth quicken

Selling prices rise solidly

Growth in the Mozambique private sector economy soared in April, as sharp rises in output and new orders sent the PMI™ to its joint-highest since late-2015. Firms enjoyed a strong increase in demand that also led to improvements in confidence, hiring and purchasing. However, increases in fuel and material costs contributed to a solid uptick in firms’ selling prices that was the joint quickest since March 2018.

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 Mozambique PMI made considerable gains in April, rising from 50.6 in March to 52.9, to indicate a solid improvement in operating conditions across the private sector. Furthermore, the index was at its joint-highest level since November 2015 (level with June 2021). The rise in the headline PMI was mainly due to sharp accelerations in both output and new order growth in April, which hit 33- and ten-month highs respectively.

Where activity rose, firms often highlighted a positive effect from improvements in sales and capacity. As well as a recovery in economic conditions following the pandemic, some firms added that clients had made advance orders due to concerns over price inflation and supply constraints. This was particularly noticeable in the agriculture and wholesale & retail sectors where sales rose substantially in April.

The sharp rise in output encouraged a further increase in workforce sizes at Mozambican firms in April. The overall rise in employment was solid and the quickest seen since the end of 2019.

Purchasing activity also rose sharply, leading to an expansion in inventories that was the strongest seen in exactly a year. Notably, vendors continued to respond well to requests for increased deliveries, as lead times were reduced to the greatest extent since last June. Capacity improvements helped firms to maintain control over their backlogs, which fell for the twelfth month running, albeit only fractionally.

At the same time, Mozambican businesses faced a marked increase in their purchase costs during April, driven by a sharp rise in global fuel and commodity prices. With costs rising, and demand growing, output charges were raised at the joint-fastest pace in over four years, led by a sharp increase at manufacturing firms.

Despite heightened inflation risks, firms remained largely confident that a demand-led recovery would continue to drive output higher over the coming year. As a result, the level of optimism picked up from March’s 12-month low and was broadly aligned with the recent trend.

Comment

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

“Standard Bank PMI rose to 52.9 in Apr, from 50.6 in Mar. The latest print suggests a robust recovery in economic activity during the first month of Q2:22, after having remained volatile between Jan and Mar 22.

“We see the rise in PMI reflecting the positive impact of an ease in health restrictions related to the Covid pandemic as well as some relief as we get out of adverse weather season, which could see some improvement in agricultural output.

“Still, we maintain that the Mar 200bps policy rate hike to the level of 15.25% will likely negatively impact GDP growth, even considering the impact of expected rise in external assistance related to the IMF funded program and progress on the natural gas projects investment.

“Early in Apr, our GDP growth forecast for 2022 has been cut to 2.8% y/y, from 3.1% y/y initially, to reflect headwinds from the Russia invasion to Ukraine and a tighter monetary policy stance from Banco de Moçambique as inflation risks remain elevated.”

Source: Standard Bank Mozambique