Picture: MASI LOSI
Picture: MASI LOSI

Manufacturing activity fell by more than expected in August, returning to contractionary territory as economic activity remains constrained.

The seasonally adjusted Absa manufacturing sector purchasing managers' index (PMI) declined to 45.7 index points in August after jumping to a more than three-year high of 52.1 in July.

The index measures activity in the manufacturing sector and a score below 50 points indicates contraction. The sector accounts for about 13% of GDP.

The latest figure falls below economist expectations of a decline to 51.4 points, still above the neutral 50-point mark, according to a Bloomberg Poll.

All of the PMI's major subcomponents were below the 50-point mark in August with the suppliers' deliveries index dropping below the mark for the first time in six months. The decline in subcomponents indicates broad-based weakness in the sector.

This decline was expected as the sector faces weak domestic demand and concerns about the global economic environment.

Absa said the index tracking expected business conditions in six months' time fell below the 50-point mark for the first time in 2019 which shows that more purchasing managers anticipate conditions to weaken even further.

The PMI has been in contraction for seven months in 2019 as power supply constraints weighed on output in the first quarter.

Senior emerging-markets economist at Capital Economics John Ashbourne said the latest PMI was “adding to the evidence” that despite the rebound in the second quarter the underlying pace of economic growth is still weak.

“The August PMI suggests that the economy was pretty weak in the middle of quarter three,” Ashbourne said.

The latest PMI comes just a day before second-quarter GDP is scheduled to be released. Some economists are expecting the manufacturing and mining sectors to lead the rebound.

The consensus is an expansion of 2.5% in GDP growth for the second quarter among 13 economists polled by Bloomberg, from a contraction of 3.2% in the first quarter.

Along with tepid local economic conditions, the outlook globally is also deteriorating, with a number of major economies also recently seeing weaker-than-expected PMIs.

Senior market analyst at Oanda Craig Erlam said lower-than-expected PMI from the UK and Germany on Monday offered “further confirmation of the slowdown we're seeing globally”.