Henk Langenhoven
Photo by: Duane Daws
3.3 index-point drop in the Kagiso Purchasing Managers’ Index (PMI) to 50.2 in December was largely the result of electricity disruptions in November, which bruised nationwide economic activity, the Steel and Engineering Industries Federation of South Africa (Seifsa) said on Thursday.
The overall index declined by 5.8%, ending the year 4% lower than in 2013, while the December business activity subindex of the PMI recorded an almost 14% decline on November.
Seifsa chief economist Henk Langenhoven said this was of “serious concern”, as it reflected the expected impact on production trends in the metals and engineering sector.
He reiterated that the federation had, last year, observed that medium-term trends in the business activity subindex level and its rate of change seemed to have “bottomed up” in the middle of 2014.
“The continuation of this improvement is crucial, since it leads metals and engineering production trends by between 12 and 18 months. Although the trends remained positive, the December numbers have raised uncertainty significantly and may indicate that a substantive recovery will be delayed further than 2015,” he cautioned.
Langenhoven added that the December PMI was nearly 5% lower than that of December 2013, “almost certainly” indicating continued depressed production numbers for the sector in the last month of the year.
The index did, however, reveal certain gains, including a 24% improvement in expected business conditions, an improvement in supplier performance and declining order backlogs.
In contrast, purchasing commitments declined – as did new orders – which indicated lower-than-expected demand, the latter supported by the price indicator dropping.
This placed the "near-exuberance" reflected in the expected business conditions in question.
“The December PMI numbers are quite disconcerting and, by all indications, mostly reflect the electricity constraint. Urgent and effective interventions are needed from all players. If not, stronger production patterns in the metals and engineering sector will not materialise this year,” Langenhoven concluded.