The March PMI™ survey data indicate a slight improvement in operating conditions in Mozambique's private sector, as firms experienced a slowdown in demand growth and only a slight increase in activity. At the same time, input costs rose for the first time in three months due to increases in fuel and raw material prices.
Strong hiring growth also led to an increase in employee wages, which was felt by companies' customers through higher selling prices. With the threat of inflationary pressures hampering future production, along with global uncertainty caused by the war in Ukraine, business confidence hit its lowest since March 2021.
The key figure calculated by the survey is the Purchasing Managers' Index™ (PMI). Values above 50.0 point to an improvement in business conditions in the previous month, while values below 50.0 show a deterioration.
The leading PMI indicator fell from 51.2 in February to 50.6 in March, remaining above the neutral value of 50.0 for the second month in a row. The decline in the index came about due to weaker expansions in production, new orders and acquisitions stocks.
Production at Mozambican companies rose for the second consecutive month in March, signaling a further recovery from the covid-19 confinement earlier in the year. However, the increase in activity was only slight. According to respondents, the production boost was largely based on the volume of new order books, which also increased to a lesser extent than in February. Sector performances were clearly split, with new business growth in wholesale and retail trade and services in contrast to declines in agriculture, manufacturing and construction.
March data also point to a further increase in cost pressures for Mozambican companies. Overall input prices increased for the first time in three months, which panelists attributed to rising fuel and raw material prices caused by the war in Ukraine. In response, companies increased production charges for the second month in a row.
Suppliers' delivery times continued to improve in March, while firms highlighted greater flexibility among suppliers. In turn, firms increased their purchasing of production resources for the first time since last November, helping to expand stock levels.
After a slight drop in February caused by the Ómicron variant, Mozambican companies were able to bet on labor at the end of the first quarter. The rise in employment reached an eight-month high, contributing to a further slight increase in wage costs.
Finally, the outlook for business activity declined in March as a result of concerns about global inflationary pressures and the war in Ukraine.
Overall sentiment was at its lowest for exactly one year, but remained strongly positive, with about 57% of firms expecting output growth.
Regarding the results of the survey, Fáusio Mussá, chief economist of Standard Bank - Mozambique, said:
"Standard Bank's PMI fell to 50.6 in March, down from 51.2 in February 2022. Although the index remained above the benchmark of 50, it still signals a slowdown in growth momentum.
"After all, several regions in Mozambique have been affected by heavy rains and unfavorable weather conditions since the beginning of the year, which has caused damage to agricultural production and infrastructure that has in turn weakened aggregate supply and demand. The recent adjustment in fuel prices and higher costs of imported food increase the risk of inflation, which may adversely affect the economic recovery.
"The recent 200 basis point increase in the policy rate to 15.25% is likely to negatively affect GDP growth, even taking into account the impact of the expected increase in foreign aid related to the IMF-funded program and progress on investment in natural gas projects.
We believe growth slowed to 3.0% year-over-year during the first quarter of 2022, compared to 3.3% in the last quarter of 2021″.