The poor performance of Absa’s July Purchasing Managers’ Index (PMI) and the weakening of the rand will place continued pressure on the manufacturing sector, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on Wednesday.
The seasonally adjusted Absa PMI declined by a further 3.8 points to 42.9 in July, with all five of the major subindices having declined.
This marked the second consecutive monthly decline, from 46.7 in June.
An increase in input costs and additional pressure on the bottom line of companies in the metals and engineering (M&E) subcomponent of the PMI is expected.
“This does not augur well for business, especially given that the M&E sub-industry is at a crucial phase of wage negotiations. Businesses are in a very dynamic environment of increasing costs and diminishing returns, which heightens the level of uneasiness,” said Seifsa chief economist Michael Ade on Wednesday.
Despite the South African Reserve Bank’s expansionary monetary policy move to reduce costs and stimulate demand through the 25 basis points cut in the repo rate last month, the manufacturing sector will continue to face headwinds.
Seifsa economist Marique-Mari Kruger added that, despite a dip well below the neutral 50-point mark, there was still hope.
“While the PMI index dropped in July, compared with June, the movement was better than the downward 4.8 index points recorded from May to June,” she noted.
The duo believed, however, that the data could improve next month, provided there was increased focus on the government’s economic policy implementation, improved business and market sentiment, a continued positive inflation outlook and a speedy resolution to the wage disputes in the M&E industry.