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What PMIs tell us about economic recoveries in Africa

 In the face of delayed or belated GDP releases, PMIs give us a sense of how the crisis is affecting some of Africa’s key economies. They also give us a sense of the health of private sectors coming into the crisis. Indications are that Kenya, Ghana and South Africa will see strong GDP recoveries in Q3 following deep contractions Q2. In turn, the latest readings show that Nigeria and Egypt did not enter the third quarter with strong momentum. While all these economies are expected to record some form of mechanical bounce-back in Q3, the recoveries in Egypt and Nigeria could disappoint.

 It should be noted that PMI readings regaining pre-crisis levels does not imply that output levels have also done so. Contrary to popular belief, PMIs are not sentiment indicators and should reflect actual economic activity relative to the previous month. This is why we see a synchronised collapse in PMI readings in March and June. However, the variation in more recent figures tells a story of dissimilar recoveries, with the latest July figures reflecting the economic momentum brought into 2020 Q3.

 Kenya (whole-economy), South Africa (manufacturing), and Uganda (whole-economy) have seen their PMIs enter expansionary territory in July, while the June and July figures for Ghana (whole-economy) suggest economic activity has stabilised and will improve in coming months.

 Egypt has seen a slight recovery in its PMI (non-oil economy) but it remains below the 50-point threshold. Respondents have become more upbeat as the government has loosened restrictions, but the employment index shows ongoing job cuts and a recovery premised on optimism instead of actual activity is a fickle recovery. In turn, both Nigeria’s manufacturing and non-manufacturing PMIs remain in contractionary territory as that country contends with lower oil prices, tight FX liquidity and lockdown measures to contain the Covid-19 pandemic.