PMI falls to lowest level since January
THE BARCLAYS Purchasing Managers’ Index (PMI) for October fell to the lowest since January, suggesting manufacturing sector conditions deteriorated at the start of the fourth quarter.
The PMI, which is compiled by the Bureau for Economic Research, fell by 2.6 points to 45.9 from a downwardly revised 48.5 points in September.
Barclays Africa said the current level was the lowest since January and well below the neutral 50 point mark.
“This suggests that the manufacturing sector experienced a lacklustre start to the fourth quarter of 2016. Indeed, four out of the five main PMI subcomponents declined on a month-on-month basis, with only the index measuring suppliers’ performance ticking up slightly in October.”
It said with global economic prospects looking up in the second half of this year, it could be that renewed concern about the future of Finance Minister Pravin Gordhan, increased talk about a possible credit downgrading for South Africa at the end of the year, as well as #FeesMustFall protests affected manufacturers’ sentiment.
“In addition, the lack of a recovery in (domestic) demand likely also outweighed on expectations as the PMI leading indicator slipped further,” it said.
“This means inventories outstrip sales orders, which usually does not bode well for production growth.”
The Steel and Engineering Industries Federation of Southern Africa yesterday expressed grave concern at the continuing contraction in the metals and engineering sector as indicated in the PMI.
Senior economist Tafadzwa Chibanguza said it was concerning that the PMI indicated a continuing slump across all comparable periods.
“In the year to October 2016, the index decreased by 2.8 percent when compared to the corresponding period in 2015. Also, when the 12-month period ending in October 2016 is compared to the previous 12 months, a worrying 5.2 percent slump is noticeable.”
Great concern
Chibanguza said the PMI reading spelt great concern for the metals and engineering sector and represented a deeper contraction for a sustained period.
Chibanguza added that the PMI’s business activity sub-index, which leads the metals and engineering sector by 12 months to 14 months and is an important indicator for the sector’s production performance, was also gravely concerning, regardless of how one analysed it.
“These readings paint a picture that is a lot more bearish than our 2016 forecast of minus 3 percent for the metals and engineering sector,” said Chibanguza.
A Moody’s Investors Service representative said yesterday that South Africa measured favourably in most indices bar economic growth, which the Treasury has forecast would be 0.5 percent this year. Moody’s rates South Africa two notches above sub-investment grade with a negative outlook and is due to publish its next review in December.
Fellow ratings firms S&P Global’ Ratings and Fitch have the country just a step above junk. The three agencies have warned that increased political infighting along with slowing growth could trigger downgrades.