Johannesburg - South Africa’s Purchasing Managers’ Index has dropped to its lowest level since August 2009, showing that the sector continues to battle, despite relief in continued power supply.
The index, released on Wednesday by Barclays, fell “sharply” to 43.3 points from 48.1 in October. All of its major subcomponents are now below the neutral 50-point mark.
Barclays Africa economist Miyelani Maluleke notes this indicates that business conditions in the sector, which contributes a large portion to gross domestic product at 17 percent, remain challenging - despite the fact that SA was celebrating having avoided a recession just a week ago.
Maluleke adds it is clear the sector will not end the year on a high note, with growth expected to weaken further, and there will not be an early rebound in the new year. “Manufacturing is confronted by broad-based demand weakness,” says Barclays Africa.
Among the indexes that have dropped below 50 are new sales orders, business orders, expected business conditions and the employment index - indicating that the outlook for jobs, which was poor, has worsened, says Maluleke.
He notes these figures point to an underlying weakness in the sector off the back of weak domestic demand and a slowdown from key trading partners such as China and Europe.
The decline in outlook comes despite Statistics South Africa data showing the manufacturing sector recovered strongly in the third quarter and expanded by 6.2 percent quarter-on-quarter.
Barclays AFrica says “expectations that the current weak demand environment will not improve significantly over the near-term are likely weighing on manufacturers’ willingness and ability to increase output. In addition, while supply-side constraints (mainly load-shedding) have alleviated somewhat over recent months, the impact of the drought and possible water restrictions is a key risk going forward.”
Investec chief economist Annabel Bishop adds in a note that the BER/Barclays data supports the RMB/BER business confidence indicator for the fourth quarter, which - along with the SA Reserve Bank’s leading indicator - signals gross domestic product growth in the fourth quarter of this year will likely be close to stalling.
National Treasury expects SA to come out of 2015 with a 1.5 percent gain in GDP.
Bishop adds, given this background, interest rate hikes this year and next are inappropriate.
IOL