JOHANNESBURG – Data from the Absa Manufacturing Purchasing Managers Index (PMI) showed that factory activity in South Africa began the year in contraction with the index slipping from 49.9points in January from 50.7points in the previous month.
The poor performance was due to sharp falls in the indices measuring new sales orders and business activity, both of which plummeted.
NKC African Economist's Jacques Nel said the largely disappointing readings in the major sub-components masked a much more positive footing regarding future expectations.
“The expected business conditions index, which tracks expected business conditions in six months’ time, registered a third consecutive improvement in January, rising by 15.7index points to clock in at 67.2points - the best level since April 2018,” Nel said.
“Sentiment would have been supported by the lack of load-shedding in January, while a drop in the purchasing price index reflects more measured cost pressures as fuel prices fell by roughly R1.20 cents a litre in January,” he said.
The index tracking employment in the manufacturing sector surged from 40.5points in December to 48.3points last month.
The manufacturing sector has been shedding jobs at an alarming speed as the sector's contribution to growth has also shrunk in the past three decades. The embattled sector accounted for 24percent of South Africa’s gross domestic product (GDP) in the 1980s, but by 2017 its contribution to GDP amounted to just 13percent.
The World Bank has noted that manufacturing is a job multiplier; in South Africa 300000 jobs have been lost in the sector in the past decade.
Investec economist Lara Hodes said January’s PMI reading was indicative of a still-subdued domestic economy, characterised by lacklustre demand.
“With only a modest pick-up in domestic growth, we expect 1.7percent for 2019, activity in the local manufacturing sector is likely to still be relatively constrained this year,” Hodes said.
“However, should sentiment pick up post the May elections and global growth concerns ease somewhat, we could see activity rise at a faster pace than anticipated.”