Manufacturing recovery hopes dampened as Absa PMI declines further

2nd July 2018

By: Marleny Arnoldi

Deputy Editor Online

     

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The seasonally adjusted Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research, fell further below the neutral 50-point mark in June, shedding 1.9 points to 47.9 points.

This compares with 49.8 points in May and is the lowest level since March, when the PMI measured 46.9 points.

An index below 50 indicates contraction in the manufacturing sector.

Absa said that the dip meant that the average level recorded during the second quarter was only 0.3 points above the first quarter’s average and still below the 50-point level, adding that the sector was “unlikely to stage a solid recovery after output contracted on a quarter-on-quarter basis in the first quarter”.

The most disappointing result of the survey, according to Absa, was a marked decline in the index tracking expected business conditions in six months’ time. The index declined for a fourth consecutive month to reach 55.7 points in June – a “staggering” 23.4 points below the multi-year record high level of 79.1 recorded in February 2018 and below the average level recorded in 2017.

Absa stated that several factors had dampened optimism over recent months, including the return of loadshedding in recent weeks and an expectation that the uptick in demand, based on the new sales orders index, would not be sustained.

For companies focusing on the export market, concerns about an intensification of the trade war between the US and other countries could also explain the more muted expectations.

Finally, Absa said that rising cost pressures could also have weighed on expectations, with the purchasing price index having surged to the highest level recorded so far in 2018.

“However, the current level of the expected business conditions index still means that respondents expect conditions to improve from the current weak environment – just less so than before,” Absa averred.

All but one of the five subcomponents of the headline PMI were below the neutral 50-point mark in June, with the exception being the suppliers’ deliveries index at 51.5 points.

The new sales orders index lost 2.4 points, in June, to reach 49.1. The downtick in demand contributed to the business activity index shedding a further 1.4 points to 45.8.

The employment index also declined with 3.2 points in June, to 46 points, after remaining more or less unchanged for the preceding three months.

Commenting on the Absa PMI, Investec said that the latest PMI reading was in line with global trends, with the global manufacturing PMI recording a nine-month low in May.

“Although second quarter results so far have been disappointing, we forecast a small rebound in growth for this year, starting in the third quarter, which should boost demand moderately in the second half of the year.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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