South Africa’s seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) recovered to its best level in over a year in November, rising to 53.3 points -– a reading above the 50-point level signals an expansion.

Besides being at its best level since August 2013, the increase in the PMI also marked the fourth consecutive monthly improvement, with the index having slumped to as low as 41.9 points in July – a period that coincided with a strike in the metal and engineering sector.

The new sales orders index rose by 4.8 index points to 55 in November, supported by a “normalisation” of domestic mining demand conditions, following a protracted platinum sector strike earlier in the year.

The business activity index, meanwhile, rose to its highest level since February 2012, from 50.3 to 56 index points.

Kagiso Asset Management head of research Abdul Davids said the fact that the average PMI for the first two months of the fourth quarter was higher than the average for the third quarter suggested that the recovery in the manufacturing sector was “finally taking hold”.

But he also stressed that the recovery in domestic conditions should be seen as a “normalisation” in the manufacturing sector, rather than a “significant outperformance”.

But Manufacturing Circle executive director Coenraad Bezuidenhout argued that the rise reflected a “real but fragile recovery”, which commenced as the reverberations of the strikes from the first seven months of the year completed their course.

However, the global environment had also deteriorated over recent months, creating renewed headwinds for local manufacturers targeting the export market.

“Eurozone recovery has stalled due to lack of unanimity on whether Europe’s continued recovery requires greater supply-side efficiency or more demand-side stimulation. Demand in African markets has also faltered, while Chinese manufacturing growth has also stalled,” Bezuidenhout said.

Davids also cautioned that electricity supply disruptions could hamper output in December, while Bezuidenhout said concerns lingered over the industrial relations climate.

“While the lack of [labour stability] is unlikely to hit manufacturing directly next year (likely public sector strikes may impact demand, though), the consequences of the National Union of Metalworkers of South Africa and platinum sector strikes are still being felt as the PMI employment subindex remain stubbornly in contractionary territory at 48.2,” Bezuidenhout added.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Henk Langenhoven was equally cautious in his assessment of the “tentative” recovery, stressing that the “improvement seemed to be entirely linked to the ‘bounce back’ in domestic activity after the strikes”.

Langenhoven also highlighted a number of contradictions in the subindices, including the 4.6% rise in the employment index in November, having “hardly moved over the 11 months”.

“New sales orders increased by 9.5% in November, but declined by 8% over 11 months. The order backlog increased by 21% in November, but only 6.5% over 11 months. The purchasing commitments improved by 12% in November, but declined by 5% over 11 months. Expected business conditions in 12 months declined by 16% in November and are 15% lower than in November 2013,” he noted.

Langenhoven, therefore, stood by Seifsa’s earlier assessment that stronger production patterns in the metals and engineering sector were only likely to emerge in the middle of 2015.

BNP Paribas Cadiz Securities economist Jeffrey Schultz said the rise in the PMI was “above our expectations” and indicative of a domestic manufacturing sector that was “slowly picking itself up out of the doldrums following the barrage of strike action”.

“Pressure observed in the PMIs of some of South Africa’s key trading partners (China and Europe in particular), however, keeps us cautious on the demand outlook for locally produced manufactured goods,” Schultz added, noting that new sales orders as a ratio of inventories remained below its neutral level.

Investec’s Annabel Bishop also highlighted that expected business conditions in six months’ time had “deteriorated significantly”.

“It is key to note that the index measuring expected business conditions in six months’ time dropped from a high of 60.4 index points to 50.7 in November,” Bishop said, adding that business confidence was still muted.

“Without sufficient electricity supply, the economy will remain constrained at low growth, and so be at risk of further credit rating downgrades,” she added, arguing that the privatisation of State infrastructure was the only solution to turn around the country’s poor growth outlook.