Slower factory activity weighs on economy

A grim outlook for the manufacturing sector has dented hopes that SA’s economy will rebound in the second half of 2018.

Activity in the sector, which accounts for about 13% of GDP, dipped to the lowest level in 13 months, the Absa purchasing managers’ index (PMI) showed on Monday.

The PMI declined from 51.5 points in July to 43.4 in August.

The index gauges activity in the manufacturing sector and is usually a good indicator of where the production numbers will head in two months’ time. A figure below 50 indicates contraction in the sector.

The PMI data comes ahead of the release of second-quarter GDP figures on Tuesday. These are expected to show that SA narrowly escaped a recession, which is defined as two quarters of contraction.

Capital Economics economist John Ashbourne said the GDP data was expected to show the economy “stagnated after the first quarter’s contraction”.

Persistent low growth stunts job creation and dampens investment. This spells trouble for President Cyril Ramaphosa in the lead-up to the 2019 election. He has promised a stimulus plan, but the details are sketchy.

Manufacturing shrank in the first quarter, contributing to the economy’s biggest contraction in nine years. The industry lost 105,000 jobs in the three months through June and growth has remained flat.

The PMI had quashed any hopes that the country’s economy would experience a sharp rebound in the third quarter, said Ashbourne.

Last week, the Manufacturing Circle said prolonged policy uncertainty and weak economic growth had constrained investment in the sector.

“The tough conditions in 2018 continue to impact manufacturers. Policy certainty, particularly around land expropriation without compensation, has also constrained investment,” said Manufacturing Circle executive director Philippa Rodseth.