JOHANNESBURG - Business activity in the broader manufacturing sector in South Africa rebounded in October, but there are still concerns about the impact of the slowing global economy on demand for exported goods.
The ABSA Purchasing Managers’ Index (PMI), released on Friday, lifted from a revised 45.1 points in September to 48.1 points in October, moving the PMI data closer to the benchmark level of 50 which separates expansion from contraction.
The PMI sets the tone for how manufacturers and various stakeholders in the broader
manufacturing sector view the month ahead.
The headline PMI has only managed to edge above the neutral 50-point mark twice during the course of 2019, and that was in January and in July.
Absa said only four of the PMI’s subcomponents improved from September, with only inventories moving lower.
Marique Kruger, economist at the Steel and Engineering Industries Federation of
Southern Africa (Seifsa), said it was encouraging to note that the majority of the sub-indices improved in October when compared to September, with the supplier performance sub-
index trending in the expansionary zone.
The worst performing sub-index is the inventories sub-index, which is still trending in the
contractionary zone.
“The rebound in the data is encouraging to businesses in the broader manufacturing
sector, including its heterogenous metals and engineering cluster of industries,” Kruger said.
“Despite low business and consumer confidence, it seems that manufacturing activity is
resilient and is generally improving, albeit at a slow pace.”
The October level was slightly higher than the average of 47.3 recorded during the third quarter, and in line with the average of 48.3 points recorded during the first nine months of the year.
The Index was expected to increase to 41.8 in October, according to the median estimate of
economists surveyed by Bloomberg.
The business activity index increased after two consecutive declines, while new sales orders also improved somewhat from a sharp drop in September.
But both indices remained below the 50-point mark pointing to a decline in demand and output.
This was countered by the supplier deliveries index which improved further in October.
The employment index also ticked up, but at 42.3 points remained very low.
Absa said respondents might be concerned about the impact of the slowing global economy on demand for exported goods.
Investec economist Kamilla Kaplan said that despite the increase, the PMI continued to signal subdued business conditions in the manufacturing sector at the start of the fourth quarter.
“Globally, manufacturing activity has slowed to levels last seen during the 2008/09 global financial crisis. This would point to weak prospects for the performance of South Africa’s manufactured goods exports,” Kaplan said.
“A meaningful lift in domestic demand is not expected as business and consumer confidence are entrenched at low levels. Against the weak demand backdrop and challenging operating conditions, including interrupted electricity supply, the manufacturing sector is unlikely to make a meaningful contribution to GDP.”