The Absa Purchasing Managers’ Index (PMI) remained virtually unchanged at a weak level of 43.2 points in September.
The latest figure dashed hopes that the sharp PMI decline in August – to 43.4 points, down from July’s 51.5 points – was a one-off occurrence. The August figure was already an 18-month low.
The average level of the PMI in the third quarter was 46 index points, which is the lowest average since the third quarter of 2017 and is 3.5 points below the average recorded in the second quarter this year.
"The deteriorating trend confirms the challenges faced by businesses amid increasing operational costs underpinned by a volatile exchange rate, rising energy costs and galloping petrol prices," commented Steel and Engineering Industries Federation of Southern Africa chief economist Michael Ade.
He added that, given the poor gross domestic product growth recorded in the second quarter, the performance of the PMI in the third quarter is worrisome, as it invariably adds to concerns about whether the South African economy will rebound immediately from the prevailing technical recession.
Absa on Monday said the PMI edged lower in September owing to declines in three of the five subcomponents of the headline index.
Of the key subcomponents, only the suppliers’ deliveries index came in above the neutral 50-point mark. The business activity index managed to gain 1.5 points in September but, despite the uptick, remained well below the neutral 50-point mark.
Worryingly, said Absa, the new sales order index edged even lower during September.
As respondents still noted an improvement in export orders, the weakness is more than likely driven by poor domestic demand conditions, including from the South African mining and retail sectors.
The employment index lost further ground in September and is now at its lowest level in more than four years.
After six consecutive declines, the index tracking expected business conditions in six months’ time moved slightly higher in September, to 45.8, compared with 44.6 in August.
“This is still a weak level and is more than ten points below the average that was recorded during the last ten years, which includes the 2008/9 recession,” noted Absa.
The PMI’s leading indicator also stayed below one, with inventories outstripping sales orders, which usually does not bode well for manufacturing output going forward.
Moreover, on the back of a significantly weaker rand exchange rate and higher Brent crude oil price, compared with the previous month, the purchasing price index increased in September, rising to 85.9 – the highest level since early 2016.
While high-frequency activity data from Statistics South Africa suggests that the economy will exit the technical recession in the third quarter, the PMI survey inspires little hope that the economy staged a strong recovery, stated Absa.
Ade said the PMI may worsen next month, unless there is a clear policy direction from government in the short to medium term.
"Hopefully, the upcoming job summit will provide some reassurances to South Africans and the business community at large, of government's ability to steer the ship back to safety."
Meanwhile, Investec has downgraded its 2018 growth forecast for South Africa's economy to 0.7% year-on-year from 1.4% year-on-year previously, as September's PMI reading is reflective of a weak economy that is operating against a backdrop of mounting supply-driven inflationary pressures and relatively subdued domestic activity.
Investec said heightened external risks remain, leaving South Africa's economy vulnerable to further weakness going forward.