Zambia’s business pulse at a 3-month low – Markit PMI

Copper smelter on the Copperbelt of Zambia.
  • Currency volatility fueled price inflation causing higher prices in the month

Business pulse in Africa’s second largest copper producer, Zambia, as measured by the Markit purchasing managers index (PMI), slid to its lowest in 3 months. Headline (seasonally adjusted value) registered a reading just barely 0.3 points north of the acceptable 50 at 50.3 in the month of July from 51.9 in June.

According to the report released by Markit economics on its website, on 03 August, drivers of the deceleration in pulse are a surge in purchase price inflation which hit a 6-months high fueled by currency volatility in the month, was offset in part by rise in output, new orders and employment rates. Forms pushed prices higher, to absorb cost push effects of currency swings. (Readings of above 50 signal expansionary pulse while those below are sign of contractionary momentum).  A 50.3 headline for the copper reflects very minimal growth in the private sector from levels of 52.3 in May.

Purchasing Managers Index trajectory curve for Zambia from Markit Economics.

Market note

Zambia ended the year 2017 on a bullish note with private sector activity on the upswing. However Q1: 2018 was clouded by a disease (cholera) epidemic which cooled much of the steam in the private sector. This coupled with effects of a firmer South African Rand (ZAR) impacted the copper producers import position in January registering a PMI of 50.7 (from 52.9 in December 2017) coming from a record 54.7 a month earlier. Zambia was in the woods in February when effects of disease priced-in dwindling the PMI reading underwater to 47.1 (below 50). With the flushing out of effects post March, private sector pulse rebounded to 50.7 and was on an upward trajectory in subsequent months to May, as copper prices traded north of USD6,800 a metric ton on the London Metal Exchange. Rising copper prices is a local proxy for stronger growth and business prospects for manufacturing, mining and small medium sized support enterprises.

The downward trajectory in the last 3 months correlates positively with the waning confidence following market pricing of negative news around the nation’s external debt position, which the Ministry of Finance is addressing through austerity and plans to refinance its soon maturing $750million dollar debt. As such some key variable such as currency have been trigger elastic to waning sentiment causing the observed fluctuations that transmitted cost push effects to impact price inflation that in turn caused upward adjustments in selling prices. The last three months signal that the economy is not growing with the desired steam.

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