South Africa’s embattled manufacturing sector is staging a comeback along with those in some major economies. The seasonally adjusted Kagiso purchasing managers’ index (PMI), released yesterday, rose 4.3 points to 56.5 last month, compared with a consensus forecast of 51.5. The index is now at its highest level since August 2007, according to Kagiso Asset Management head of research Abdul Davids.
The PMI is compiled by the Bureau for Economic Research (BER) at Stellenbosch University. A figure above the 50 level implies the sector is expanding.
BER economist Hugo Pienaar noted that PMIs in China and the euro zone – South Africa’s leading export markets – posted solid gains last month.
Commodity prices rose and stock markets responded positively to the news from abroad. The JSE all share index climbed to 42 725.70 from 42 228 at Friday’s close, while the resource index added 1.48 percent in the day to close at 27 497.99.
Bloomberg reported that, in the wake of the PMI data, nine out of 10 industry groups in the benchmark MSCI emerging markets index “advanced, led by energy stocks and financial companies”. It noted that the index had lost 11 percent this year, compared with a 10 percent rise in the MSCI world index of developed nation shares.
Standard Bank economist Shireen Darmalingam said China’s official manufacturing PMI increased from 50.3 in July to a 16-month high of 51, while the HSBC/Markit measure for China climbed to 50.1 in August, up sharply from July’s 47.7, ending a string of three consecutive declines.
“The combined average of the two figures is now above the 50 threshold for the first time since May,” Darmalingam said.
“The prints suggest that sentiment in China’s manufacturing sector has improved for the second consecutive month.”
In the euro zone, the Markit Economics PMI rose to 51.4 from 50.3 in July, above an estimate of 51.3 published earlier, according to Bloomberg. Reuters reported the Markit/CIPS PMI in the UK jumped to 57.2 last month from 54.8 in July, its fifth consecutive month of expansion.
Pienaar said: “In China, the economy seems to be stabilising after earlier concerns of a continued moderation in growth. If sustained, this should support industrial metal prices and the demand for exports such as iron ore. In the euro area, the manufacturing PMI has now been above the 50 mark for two consecutive months, driven by Germany. But the periphery countries are also showing signs of recovery.”
However, he noted: “On a more negative note, the PMIs in India and Russia were below 50 in August. This is in line with the recent concerns about emerging growth in general.”
In Russia, the PMI rose to 49.4 from 49.2 in July while India’s PMI declined from 50.1 to 48.5, the first reading below 50 since March 2009, according to HSBC.
Commenting on the Kagiso PMI, Macquarie Securities economist Elna Moolman said: “The data can be somewhat volatile, but it is still encouraging in terms of momentum. This should reduce concerns about any downside risks to the overall economic growth trajectory if the trend continues in the coming months.”
Manufacturing Circle president Mike Arnold said the PMI was in line “with anecdotal evidence that the weaker rand has led to some import substitution, that government’s local procurement efforts are gaining traction and that improved demand is coming from African markets”.