Although the seasonally adjusted Barclays Purchasing Managers’ Index (PMI) fell by 1.2 index points to 52.5 in July, the index’s level still indicates that the sector experienced a reasonably strong start to the third quarter, says Barclays.

The Barclays PMI remains in line with recent manufacturing PMI readings in the Eurozone, which is a key export market for South African produced goods.

“Initial data releases suggest that the Eurozone economy has so far remained relatively resilient after the UK’s Brexit vote, which is encouraging for the local sector’s export performance going forward,” Barclays points out.

The decline in the headline Barclays PMI was mainly driven by a 4.8-point drop in the business activity index to 49.5. This is five points below the 54.5 average level recorded in the second quarter.

However, the PMI leading indicator rose back above one in July, suggesting that output growth may pick up again going forward.

Barclays adds that the new sales orders index signals that the recent improvement in demand was sustained in July with a slight increase to 54.4 index points. Demand seems to be supported by improved export performance, with some respondents still noting significant weakness in the domestic economy.

On a positive note, the price index fell by 9.3 index points to 72.1 in July – the lowest level since April 2015.

“The decline was likely driven by a stronger rand and the lower international oil price. The combination of these factors means that the fuel price will decline significantly on Wednesday, providing input cost relief for manufacturers and consumers,” says Barclays.

The Department of Energy on Friday announced that the petrol price would decrease by 99c/ℓ in August, while diesel prices would fall by between 73c/ℓ and 74c/ℓ.

With export demand holding up and upward pressure on costs lessening somewhat in July, purchasing managers were also more optimistic about business conditions going forward.

The index measuring expected business conditions in six months’ time rose to 55.4 in July, up from 52.9 in June.

Barring any unexpected disruptions to output, Barclays expects the sector to continue its recovery during the second half of this year.