Johannesburg - The latest Barclays Purchasing Managers’ Index (PMI) paints a bleak picture of the sector, and the outlook is not expected to improve.
The PMI, released on Monday, shows the sector has started 2016 on the back foot as the index fell by 2 index points to 43.5 in January.
This is more than 5 index points below the average level recorded in 2015, and is unlikely to improve, says Barclays.
Barclays Africa economist Miyelani Maluleke says the index suggests manufacturing is shrinking for the sixth straight month and he notes activity levels are now as weak as they were during the financial crisis.
Barclays notes in a statement that, unfortunately, purchasing managers do not foresee an improvement over the near term as the index measuring expected business conditions in six months’ time declined to 39.4 – the lowest level in almost 7 years.
Read: Manufacturers not optimistic for 2016
Maluleke says the figures are worrying because, if actual numbers are inline with the index and - with agriculture under such pressure, the possibility of a recession cannot be discounted.
Barclays expects gross domestic product to grow at 0.9 percent this year, but Maluleke notes the risks are to the downside.
The PMI leading indicator also fell further below 1.
This means that inventories continue to outstrip sales orders, which does not bode well for production growth going forward.
The business activity index continued its recent downward trend and fell to 37.5 index points, the weakest since October 2008.
The 4.9-point drop brought the index to the lowest level since 2009. Some respondents stated that the seasonal drop in demand was steeper this January, which likely weighed on production.
In fact, the new sales orders index fell by 4.1 index points to 40.7.
“This is, barring January 2009, the lowest January reading on record,” says Barclays.
Read: PMI drops to 6-year low
In line with the subdued reading on the activity indicator, the employment index also fell. The index declined to 45.4 index points in January from 46.5 in December.
As expected, the price index rose sharply in January.
At 86 points, the index is at the highest level in almost 2 years. This was likely driven by the significantly weaker rand exchange rate which pushes up the cost of importing raw materials and intermediate products required for the local manufacturing production process.
On the positive side, the increased cost of importing goods may lead to increased import substitution, which could boost demand for some locally produced goods that are usually sourced internationally, notes Maluleke.
IOL