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JOHANNESBURG – The country's embattled manufacturing sector last month fell to the worst start of the year since the 2009 financial crisis, despite increasing to 47.2 points from 45 points in March.

The Absa purchasing managers' index (PMI), which measures sentiment among industrial players, failed to mask the broad challenges facing the sector, despite increasing for the first time after three months of consecutive declines.

The data means that factory conditions stabilised at a fairly depressed level at the start of the second quarter.

The improvement in the headline PMI was driven by new orders and business activity sub-indices, which both jumped to their strongest readings since January.

The business activity surged 7.9 points to 49.6 points in the three months while the new sales orders index rose by 4.9 points to 47.3 points.

Capital Economics senior emerging-markets economist John Ashbourne said the stronger result reflected a slight improvement in the power sector.

“Disruptions to output worsened significantly in March, with Eskom cutting its output by three times as much as it had in February. While problems at the power utility persisted in April, output cuts seem to have been less severe than as before,” Ashbourne said.

The PMI and manufacturing production were battered in February and March after Eskom struggled to keep the lights on and resorted to stage 4 load shedding to avoid the total collapse of the grid.

The power utility has, however, not implemented any blackouts since March 23.

Investec economist Kamilla Kaplan said prospects for the sector remained tenuous on the risks of continued electricity supply shortages over the course of the year.

“Additionally, external demand conditions are likely to remain muted, with most global advance indicators pointing to subdued activity.

"A sustained strengthening in domestic demand is reliant on a recovery in business and consumer confidence levels,” Kaplan said.

“The actual manufacturing production updates for January and February suggest the sector will have made a negative contribution to first quarter gross domestic product.”

Results from the PMI also showed that the sector was struggling to create new jobs, with the employment index declining further to 41.9 points.

Absa said that the index has now failed to edge above the neutral 50-point mark since mid-2016.

“Sustained employment creation in the manufacturing sector is likely to remain absent without a meaningful improvement in demand and activity levels.”

Steel and Engineering Industries Federation of Southern Africa chief economist Michael Ade said the current performance of the PMI was against the backdrop of a rebound in expected business conditions in April 2019 and is reassuring.

“Of greater concern, though, is the high volatility and heightened uncertainty in the trajectory of the PMI sub-indices – namely business activity, inventories, suppliers’ performance, employment and new sales orders – which do not provide much confidence to purchasing executives,” Ade said.

BUSINESS REPORT