The Barclays Purchasing Managers’ Index (PMI) fell by two index points to 43.5 in January, with the index measuring expected business conditions in six months’ time dropping to a near seven-year low of 39.4 and the local business activity index decreasing to 37.5 points.

BNP Paribas Cadiz Securities economist Jeffrey Schultz marked the poor start to the year as a recession amid faltering global and domestic demand, falling commodity prices and confidence.

He noted that this was reaching crisis lows. “These figures support our view that persistently weak supply-side dynamics are unlikely to see a turnaround in domestic growth fortunes anytime soon in spite of the weaker rand helping to ‘cushion’ some of the blow to larger, more export-oriented manufacturers,” he added.

Barclays economist Miyelani Maluleke agreed, telling Engineering News Online that, with some of the underlying data at their weakest level since the 2009 global financial crisis, it was “really indicative of a sector that is in a very deep malaise”.

He further pointed out that while some short-term volatility was not unusual, the instability in the PMI since November, was indicative that conditions were as difficult as they were in mid-2009, at the height of the global financial crisis.

“The Barclays PMI has been in contractionary territory for six consecutive months now and, when we look across the underlying data, the discontent is fairly broad-based but demand, in particular, appears to be one of the major constraints right now,” he noted.

Some respondents stated that the seasonal drop in demand was steeper this January, which likely weighed on production, with the new sales orders index having fallen by 4.1 index points to 40.7.

This was, barring January 2009, the lowest January reading on record. In line with the subdued reading on the activity indicator, the employment index also fell to 45.4 index points from 46.5 in December.

“What is even more concerning is that we are seeing a dissipating sense of optimism among manufacturers,” Maluleke said, pointing to the deterioration in the index measuring expected business conditions in six months’ time , while the PMI leading indicator fell further below one. This meant that inventories continued to outstrip sales orders, which did not bode well for production growth going forward.

The business activity index continued its recent downward trend and fell to 37.5 index points. The 4.9-point drop brought the index to the lowest level since 2009.

As expected, the price index rose sharply in January. At 86 points, the index was at the highest level in almost two years. This was likely driven by the significantly weaker rand exchange rate which pushed up the cost of importing raw materials and intermediate products required for the local manufacturing production process.

On the positive side, the higher cost of importing goods could lead to increased import substitution, which could boost demand for some locally produced goods that are usually sourced internationally.

Maluleke did not expect South Africa to slip into a recession.

“In fact, we project gross domestic growth growth of 0.9% this year. However, if manufacturing production performs in line with these PMI readings and we see agricultural activity come under increased pressure owing to the drought, there is a real possibility that we could see at least one quarter of negative growth,” he said.