The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) increased for the second consecutive month in February, rising to 53.6 – above the key 50-point mark for the first time since August 2012.

Kagiso Asset Management research head Abdul Davids pointed out that the headline PMI was largely driven by improvements in the new sales orders index, which was up by 9.3 points, and the business activity index, which improved by 2.6 points.

“The significant improvement in new sales orders may reflect a turnaround in demand for locally manufactured goods.

“Tentative indications of an improvement in the European Union and US economies at the start of this year may have contributed to the increased demand for manufactured goods and a sustained recovery in demand will require improved GDP growth in these regions,” he commented.

Davids also highlighted that the weaker rand exchange rate since the start of the year may have also improved local producers’ short-term price competitiveness on international markets.

Further, the employment subindex gained 3.4 points to reach 45.7 in February. While this was its first increase since November 2012, the index remained significantly below its precrisis peak of 60.6 points.

Meanwhile, the price index was the only subindex to disappoint. Mounting input cost pressures saw the index gaining four points to reach 86, its highest level since March 2011.

Davids said sustained rand weakness and the high oil price were the key drivers of higher input costs. However, on a positive note, electricity price increases for the next five years would be much lower than initially expected following the National Energy Regulator of South Africa’s decision, on Thursday, to grant Eskom yearly electricity tariff hikes of 8%, and not the 16% the utility had applied for.

“Electricity is a significant input in the manufacturing process and Eskom’s sustained programme of substantial electricity price hikes over the last few years has adversely impacted on the local manufacturing sector’s competitiveness.

“The lower-than-expected tariff increases are, therefore, welcomed and should assist in improving the sector’s global competitiveness,” he commented.