Clouds over South African manufacturing sector darken
Absa’s PMI has sunk deeper into contraction territory, with a sharp, across-the-board decline
The Absa purchasing managers’ index (PMI) has dipped further, spelling bad news for the manufacturing sector.
After falling below the neutral 50-point mark in June, the index slumped from 46.7 points to 42.9 in July — with all five subindices weakening.
The latest reading is the weakest level since the second half of 2009, when SA last experienced a recession.
A score above 50 indicates an expanding manufacturing sector.
Absa said in a statement on Tuesday: “Against the backdrop of well-above 50 readings for the PMIs in some of SA’s major trading partners, including the eurozone and the US, the performance of the South African manufacturing sector remains most disappointing.”
While Reserve Bank’s interest rate cut of 25 basis points may provide some reprieve, Absa warned that the manufacturing sector continued to face a number of headwinds, including the possibility of an extended strike in the metals and engineering industry.
The seasonally adjusted business activity index came under the most pressure, declining by a significant 6.1 index points to “a depressing” 39.3.
New sales orders index fell by almost four points in July to 39.8 while the employment index fell three index points to 44.1.
“After a sharp downscaling of business expectations for the next six months in June, purchasing managers remained downbeat about business prospects in July, albeit slightly less so.”