JOHANNESBURG - Sentiment in South Africa's manufacturing started the year on the back foot and declined to the lowest level since September 2019 as employment and inventories slid in January.
The Absa Purchasing Managers’ Index (PMI) released yesterday slipped deeper into contraction territory in January, losing 1.9points to reach 45.2index points from 47.1points in December. The index, which gauges manufacturing activity in the country, remained below the 50-point mark, separating contraction from expansion for a fourth consecutive month.
The data was below market expectations of a 48-point increase in January from 47.1points in December, partly on a rebound effect from the electricity supply disruptions in December that effected production.
Some economists had anticipated another dismal print in January amid weak domestic demand and intermittent power outages.
Absa economist Miyelani Maluleke said the data suggest that sustained weak demand was weighing on activity growth. Factory output has been below 50points for six consecutive months, indicating a contraction in the industry.
“Worryingly, even as current conditions deteriorated further, respondents still turned more pessimistic about the business environment going forward,” Maluleke said.
The PMI, compiled by the Bureau for Economic Research, noted that the decline in the backlog of sales orders “is another sign of soft demand”.
Investec economist Kamilla Kaplan said the PMI data was mainly underpinned by deepening rates of contraction in the backlog of sales orders and employment that dropped to 10- and six-year lows, respectively.
“There is some indication that the downturn in global manufacturing may have stabilised with scope of an improvement into 2020, barring a severe global growth and trade fallout from the coronavirus,” Kaplan said.
“Should the external environment turn more favourable over the course of the year, a recovery in South Africa's manufacturing sector will still be hindered by subdued domestic demand, weak electricity infrastructure and elevated operating costs particularly, on the administered front.”
Manufacturing accounts for about 13 percent of gross domestic product.