Mozambican private sector companies reported a stronger deterioration in business conditions in the final month of 2024, as output and order books were again negatively impacted by protests and strikes. Customer demand fell at the quickest rate in four-and-a-half years, leading to additional cutbacks in purchasing, stocks and staffing.
Lower purchases of inputs helped to soften business costs, which dropped for the second month running and supported a renewed reduction in charges. Additionally, firms were slightly more confident about the business outlook than in November.
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 dropped another two index points in December, registering well inside contraction territory. At 46.4, from 48.4 in November, the reading indicated a solid deterioration in the health of the private sector. Furthermore, it was the lowest reading since August 2020.
Surveyed businesses widely reported that the decline in operating conditions was due to protests and strikes following the general election. Unrest had a considerable impact on total new order intakes, which fell to the greatest degree since June 2020 and across all monitored sectors.
Similarly, business activity contracted at a marked rate that was the quickest recorded in over four years. In addition to the protests curbing demand and capacity, there were some reports that border closures led to product shortages. Purchasing activity was thereby also affected, with firms registering a sharp decline in December.
Contractions in output and sales led to sustained decreases in employment and inventories. In both cases, rates of decline were similar to those observed in November. The drop in inventories was solid, while that for workforce numbers was slight. Qualitative evidence signalled that some firms found it challenging to recruit workers during the protests.
Whilst product shortages and strikes resulted in capacity challenges for some businesses, this was largely outweighed by a lack of demand. As such, the volume of backlogged work at Mozambican firms fell in December (albeit fractionally). Capacity shortfalls at vendors meanwhile led to a further lengthening of lead times, although the degree to which lead times lengthened was less marked than in November.
With input buying falling, businesses again highlighted a reduction in purchase costs in December. Wage costs were relatively stable, extending the muted trend seen over the fourth quarter. Subsequently, the latest survey data pointed to the fastest decrease in overall business expenses since July 2020, with reductions observed in all of the five sectors monitored by the survey.
Selling prices likewise decreased, marking the first reduction in 20 months. That said, the fall was mild and centred on the manufacturing and services categories, contrasting with upticks in agriculture, construction and wholesale & retail.
Despite the downturn worsening in December, Mozambican firms were slightly more confident about the business outlook. That said, sentiment was still at one of its lowest levels in four years.
Comment
Fáusio Mussá, Chief Economist – Mozambique at Standard Bank commented:
“The Standard Bank Mozambique PMI slipped to a seasonally adjusted level of 46.4 in December, down from 48.4 in November, declining for the fourth month running and to the lowest level since August 2020. PMI prints below the 50-benchmark suggest month-on-month contraction in economic activity.
“Post-election protests since 21 October have been weighing down economic activity, with the December PMI reflecting month-on-month contractions in output, new orders, supplier´s delivery times and stock of purchases, on the back of a slump in aggregate demand and supply-chain disruptions.
“We have lowered our GDP growth estimates for 2024 to 2.5% y/y, and our growth forecasts for 2025 to 3% y/y. Growth was 5.4% y/y in 2023. This implies GDP growth turning negative, at least in Q4:24 and Q1:25. Climate change events could also have a negative impact on growth. Tropical cyclone Chido which hit parts of Northern Mozambique has already caused a death toll, displacements and material infrastructure damage.
“However, we retain our year-end inflation forecasts for 2025 at 5.8% y/y. Nevertheless, the risks to inflation have increased due to higher food inflation as well as entrenched fiscal and foreign exchange (FX) pressures.
“The outlook has worsened markedly due to post-election tension, GDP growth backtracking, inflation rising, fiscal pressures, FX supply-demand imbalances, recurrent episodes of insecurity in Cabo Delgado and as a result, recurrent LNG investment delays.”
Source: Standard Bank Mozambique PMI
