SA’s factory owners express record pessimism
SA’s factory owners showed their biggest swing into pessimism on record in October, the Barclays-sponsored purchasing managers index (PMI) released on Tuesday showed.
A 13.2-point plunge in expected business conditions in six months’ time caused the overall index to fall 2.6 points to 45.9 points, the monthly poll of purchasing managers done by Stellenbosch University’s Bureau of Economic Research (BER) showed.
The index tends to predict what Statistics SA’s manufacturing output data will show in about two months’ time, fairly accurately.
September’s figure was revised down to 48.5 points from the previously reported 49.5 points.
The consensus of economists was the PMI would recover to near the neutral level of 50. A result under 50 indicates SA’s manufacturing output is shrinking.
BER said manufacturing was at its lowest level since January, and augured poorly for SA’s chances of recording fourth quarter GDP growth.
Four of the five main PMI subcomponents declined month on month, with only the index measuring suppliers’ performance ticking up slightly in October.
"With global economic prospects looking up in the second half of 2016, it could be that renewed concern about the future of Finance Minister Pravin Gordhan, increased talk about a possible credit rating downgrade for SA at the end of the year, as well as Fees Must Fall protests affected manufacturers’ sentiment," BER said in its report.
Manufacturing Circle CEO Philippa Rodseth said manufacturing performance had been patchy on a monthly basis due to challenges including water and energy constraints and lacklustre demand. “We find our manufacturers are pretty resilient in dealing with these things but there are challenges.”
The sector was the largest contributor to GDP growth of 3.3% in the second quarter.
But economists at Stellenbosch University’s Bureau for Economic Research who compile the monthly PMI research said the reading below 50 – the neutral mark — suggested “that the manufacturing sector experienced a lacklustre start to the fourth quarter”.
Tafadzwa Chibanguza, senior economist at the Steel and Engineering Industries Federation of Southern Africa, said: “These readings paint a picture that is a lot more bearish than our 2016 forecast of -3% for the metals and engineering sector … it affirms our view of further contraction in the metal and engineering sector for a longer period.”
With Asha Speckman