The Kagiso Purchasing Managers’ Index (PMI), which declined sharply to 50 points in September amid South Africa’s prolonged automotive-sector strike, recovered modestly to 50.7 index points in October, but remained below the average third-quarter print of 52.7.However, the medium-term outlook was more positive, with the index measuring expected business conditions six months hence rising by 10.4 points to 62.2 – its highest level since March 2012.

Kagiso Asset Management head of research Abdul Davids said the rise might reflect increased confidence about the growth prospects within South Africa’s key trading partners, as domestic demand conditions were likely to remain “relatively soft”.

Earlier in the month, the National Treasury lowered its 2013 growth outlook from 2.7% to 2.1% and also projected that the economy would expand by only 3% in 2014. But in a regional update, the International Monetary Fund said sub-Saharan Africa, which is emerging as a key market for South African manufacturers, should grow by around 5% this year and rise to 6% in 2014.

Manufacturing Circle executive director Coenraad Bezuidenhout said improved expectations related to three key developments: a view that the worst of the industrial-relations disruptions were over; that demand in Europe and the US might pick up and that demand from African markets would be sustained; and that local-procurement and other industrial-policy measures were gaining traction.

Davids said conditions remained restrained during October, with some labour disputes having spilled over into the month. Nevertheless, the PMI’s business activity index increased by 4.5 points to reach 52.6 in the month.

The new sales orders index rose by 1.2 points to 50.6, signaling a slight improvement in demand, but was still three points below the average reading for the third quarter.

The employment index remained unchanged at 49.4, which Davids said did not bode well for employment creation in the sector.

Manufacturing shed 60 000 jobs year-on-year during the third quarter of 2013, while the overall employment levels improved. In fact, Statistics South Africa’s Quarterly Labour Force Survey showed that the unemployment rate fell to 24.7%, from 25.6% in the second quarter.

Bezuidenhout said the weak employment index was consistent with Manufacturing Circle's concerns that weak demand, rising input costs and affordable capital would make mechanisation a necessary consideration for manufacturers seeking to protect theircompetitiveness, especially when productivity was not keeping pace with remuneration.

The PMI’s price index continued its downward trend, largely as a result of lower fuel prices, shedding nearly two index points to reach 80.8, its lowest level since April. However, a weaker exchange rate and increased labour costs remained key future risks.