Economy shows signs of recovery as PMI rises

The economy is showing signs of recovery after a tough 2016, characterised by weak growth and low consumer and business confidence. The Absa manufacturing purchasing managers’ index (PMI) went past the neutral 50-point mark in February, documenting a 52.5-point reading — its best since June 2016. The January reading was at 50.9. The upward trajectory signals a prospective improvement in manufacturing.

The economy is showing signs of recovery after a tough 2016 characterised by weak growth and low consumer and business confidence.

The Absa manufacturing purchasing managers’ index (PMI) exceeded the neutral 50-point mark in February, recording a 52.5-point reading — its best since June 2016. The PMI for January was 50.9 points.

The upward trajectory signals a prospective improvement in manufacturing.

Capital Economics economist John Ashbourne said: “This marks the second month the indicator has been above the 50 which, in theory, divides expansion from contraction.

“The February PMI supports our view [the] economy will recover in 2017. Indeed, growth could be a bit faster than most expect. We’ll know more when the January output data are released later this month.”

BNP Paribas economist Jeffrey Schultz said: “The gains in manufacturing PMI gels well with our view for an improvement in domestic growth prospects in 2017.”

Although domestic demand remains weak, economists are optimistic about the overall outlook for the economy.

“We believe that a rebound in global industrial metals prices and improvement in global economic demand and activity should act as a welcome support to manufacturers in the coming months,” said Schultz.

Investec economist Kamilla Kaplan cautioned that while manufacturing production and allied industries were expected to rebound, higher taxes could restrict recovery in spending.

“An improvement is expected in mining and agriculture, as well as a lift in commodity prices and drought dissipating, but we might not see a proper recovery for private consumption,” said Kaplan.

The South African Chamber of Commerce and Industry’s business index for January jumped to 97.7, its best reading in five months.