First PMI increase in three months shows green shoots for SA’s manufacturing sector
The purchasing managers index has reached its highest level since July 2018
As manufacturing looks set to boost GDP in the third quarter, a survey has showed that factory owners are more upbeat about the sector.
The Absa purchasing managers index (PMI), which gauges activity in the manufacturing sector, rose to 49.5 from 42.4 in October. This the highest level the index has reached since July 2018.
The monthly survey, which was released on Monday, tends to be a good predictor of the manufacturing production and sales figures that Statistics SA provides about two months later. A figure below 50 indicates contraction in the sector.
This comes the day before the third-quarter GDP figures are set to be released by Statistics SA. Many economists are in agreement that SA will emerge from its first recession since the global financial crisis. All of the analysts polled by Bloomberg predict that figures released on Tuesday will show that GDP rose.
However, growth is still expected to remain lacklustre for the year. The Treasury expects benign growth of 0.7% while the Reserve Bank expects 0.6% in 2018.
Persistent low growth stunts job creation and dampens investment. As the 2019 election approaches, stronger growth will bode well for President Cyril Ramaphosa, who has been under pressure to boost the economy and make a dent in unemployment. The president recently hosted jobs and investment summits and announced a R50bn economic stimulus plan in an effort to resuscitate the economy
“Today’s surprisingly strong result will add to the improved sentiment surrounding SA’s economy. Recent figures have all suggested that the economy began to exit recession in the middle of the third quarter,” said Capital Economics economist John Ashbourne.
Manufacturing, which accounts for about 13% of GDP, contracted 0.3% in the second quarter and shed 105,000 jobs. However, the third-quarter figures show that the sector’s production was 1.7%, which will contribute positively to growth.
The lift in the third-quarter growth figures is expected to have been underpinned by positive growth in the manufacturing and trade sectors, Investec economist Kamilla Kaplan said.
While a slow rebound in the sector is welcome, the overall momentum in manufacturing sector activity remains generally soft, said Absa economist Miyelani Maluleke.
The sector has significant underutilised capacity, and urgent demand-side interventions are required to slow the rate of job losses and de-industrialisation before real growth is observed, and new jobs are created, warned Philippa Rodseth, the executive director of the Manufacturing Circle, which is the industry voice.