New orders trigger economic activity in Mozambique in October

A mozambican private sector economic activity accelerated in October to the highest level in four and a half years, driven by the stronger growth of new orders in more than five years, according to the PMI index.

The conditions of Mozambican companies improved for the fourth consecutive month, with the PMI index (Purchasing Managers’ Index) of Standard Bank Mozambique rising from 50.2 points in September to 52.7 points in October, the highest value since April 2022.

Indicators above 50 points point to an improvement in business conditions compared to the previous month, while lower values indicate deterioration.

The study identifies that production has increased again “in the context of a sharper increase in new orders since June 2021”, that acquisition activity has increased “at the fastest pace in the history of the survey” and that purchasing price inflation has reached “the highest level in almost four and a half years”.

Business expectations remained close to the maximum of almost nine years achieved in September, with 77% of companies predicting increased production in the next 12 months and only 1% anticipating a reduction.

According to Standard Bank, the positive sentiment reflected expectations of “business expansion, investment in technology and equipment, stock acquisition and market share increase”.

It adds that the private sector received “a new boost” in October, sustained by the growth of new orders, “impulsing business activity back to growth.”.

The companies attributed the increase in sales to the conquest of new customers, the launch of new products and the strengthening of market presence. For the first time in more than two years, the five sectors covered by the survey have grown in new orders, and construction has led the growth of new orders, in a context where the expansion has been across the various sectors analysed.

The activity of purchasing means of production has registered the strongest growth since the start of the statistical series in March 2015, reflecting the strengthening of ‘stocks’ before the expectation of higher demand. According to the report, companies increased purchases “in an effort to rebuild inventories and prepare for higher levels of activity”.

Despite the resumption of the activity, the job returned for the third time in four months, even if only marginally. The report states that some companies continued to face “financial viability constraints”, which restricted new contracts.

The study also indicates that late orders increased for the first time in four months, indicating greater pressure on the operational capacity of companies.

Costs of production factors continued to increase in October, at the highest rate since mid 2022. The companies linked this to the increase in costs of “fuels, transport, imports and larger orders”.

The companies surveyed also pointed to the strengthening of productive capacity, diversification of product supply, the opening of new business units and the entry into new markets as factors supporting growth expected for the coming months.

Cited in the report, the chief economist of Standard Bank Mozambique, Fáusio Mussá, said that the strong rise in the index reflects the growth of new orders, the recovery of production and the acceleration of production factor acquisitions.

According to the economist, “aggregated demand should continue to be driven by progress in natural gas projects,” contributing to sustaining business confidence in the next 12 months.

However, Mussá warned that there are still risks associated with “the government’s limited fiscal margin, constraints on access to finance, imbalances between demand and foreign exchange supply and credit restrictions outside the natural resources sector.”.