Manufacturing Outlook remains glum for second quarter
After a muted performance in the first four months of 2018, the outlook for the manufacturing sector still looks glum.
The sector is the fourth biggest of the economy at 13% after financial services, government and the trade sectors.
It added 58,000 jobs in the first quarter, according to Statistics SA’s quarterly labour force survey.
The Absa purchasing managers’ index (PMI), one of the key trackers of activity in the manufacturing sector, slumped to the lowest level in three months. The June index dropped to below the neutral 50 mark, a clear indication of a contraction in the sector.
The move does not bode well for the economy, whose growth in the first quarter waned. Together with the mining and agricultural sectors, a dour manufacturing performance was one of the main reasons for the waning growth.
“The fall in South Africa’s manufacturing PMI for June provides further evidence that the slump in the economy seen in the first quarter was followed by further weakness in the second quarter,” Capital Economics economist John Ashbourne said.
The quarterly fall in the economy was the largest since the second quarter of 2009, indicating that the renewed confidence under President Cyril Ramaphosa had done little to boost the economy.
April’s figures also suggested that the slump continued at the start of the second quarter.
Growth is expected to rise in the second half of the year, Investec economist Lara Hodes said. “Although second-quarter results so far have been disappointing, we are forecasting a small rebound in growth for this year, commencing in the third quarter, which should boost demand moderately in the second half of the year.”
NKC analyst Gerrit van Rooyen said that while Ramaphoria, an environment of renewed optimism that followed Ramaphosa’s election early in 2018, had waned, the manufacturing sector was also marred by “dark clouds in the form of trade protectionism, which are growing gloomier”.
The June PMI reading was probably adversely affected by increased trade and foreign policy frictions between the US and some of its major trading partners, he said.
The weakening rand and increasing international oil prices had put upward pressure on purchasing prices, he added.
“We need to keep a close eye on how the manufacturing environment monitors and responds to such changes in circumstances in the short term,” said Philippa Rodseth, executive director of the Manufacturing Circle, the industry voice.