Manufacturing sector concerned about its future
For the first time in 11 months, the subindex tracking expected business conditions in six months’ time dropped to below 50
As the manufacturing sector bleeds jobs, factory owners are worried about its future. This comes as employment statistics released on Tuesday show that the sector lost 55,000 jobs year on year in the second quarter.
The seasonally adjusted Absa purchasing managers index (PMI) rose to 51.5 index points in July, up from 47.9 in June.
However, the PMI pointed to a grim view for the rest of 2018. For the first time in 11 months, the subindex tracking expected business conditions in six months’ time dropped to below 50.
Unresolved trade disputes between the US and its major trading partners, continued domestic political uncertainty, higher fuel prices and the intermittent return of power interruptions would weigh on business conditions in the manufacturing sector in coming months, said NKC analyst Gerrit van Rooyen.
"The manufacturing industry reversed all its job gains from the previous two quarters, in line with deteriorating business conditions in the industry," Van Rooyen said.
The manufacturing sector was extremely responsive to changes in the global and local environments, the Manufacturing Circle executive director Philippa Rodseth said. She added that the sector still had a long way to go to see a turnaround.
"We continue to motivate the importance of the sector as a leading contributor to economic growth, but we still have a long way to go and we are not going to see immediate changes overnight," Rodseth said. "Our factories are currently operating under capacity, and we need demand-side interventions to include implementation of catalytic projects to kick-start growth and stimulate additional investment."
The PMI gauges activity in the manufacturing sector and is usually a good indicator of where the production numbers will head in two months. A figure above 50 indicates expansion in the sector.
"This is the first time since August 2017 that manufacturers expect conditions to deteriorate going forward instead of improving," Absa said in a statement on Wednesday.
Manufacturing was one of the biggest detractors from economic growth in the first three months of the year. The sector, however, rebounded in the second quarter. While SA is expected to stave off a recession, economic growth will remain weak.
While still a heavy hitter, the sector has shrunk substantially in recent years. Since the early 1980s, manufacturing’s contribution to GDP dropped from 24% to less than 13% in 2018.
"For what it’s worth, the reading was a positive sign that activity picked up going into the third quarter," Capital Economics economist John Ashbourne said.
However, SA’s slow growth again highlighted the serious need for structural reform, with the risk to fiscal sustainability and credit ratings having become elevated again, Old Mutual head of economic research Johann Els said.