The decline in the Absa Purchasing Managers’ Index (PMI) for June is confirmation that the fundamentals of the South African economy are too weak to support the manufacturing sector, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on Tuesday.
The PMI dropped to 46.7 index points in June, down from 51.5 in May.
Overall, at the present level, the index is indicative of contraction in the manufacturing sector.
“Following the sharp decline of the index in April to 44.7 index points, on the back of the unfortunate political events and the downgrades, we had welcomed the rebound in the May reading to 51.5 index points as a normalisation of the trend,” Seifsa senior economist Tafadzwa Chibanguza said.
He added that, in addition to the weak economy, the manufacturing sector had, however, experienced a gradual and painfully slow erosion of confidence and production capacity.
Chibanguza noted that business activity, new sales orders, employment, inventories and purchasing commitments decreased to below 50 index points.
This was indicative of deterioration in an already negative environment, he said.
“At a deeper glance, this weakness is a function of a weak economy,” Chibanguza pointed out.
He added that the weak economy was also evident in Seifsa’s first quarter review of the metals and engineering sector, where sub-industries with lower export-to-output ratios and more reliance on the domestic economy for orders, performed the worst and contracted in all instances.
“Unfortunately, the stronger rand in June would not have contributed any upside to export prospects. Manufacturers would have faced headwinds both at home from a slowing economy, which is in a technical recession, and outside of its borders because of a stronger rand,” Chibanguza said.