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Kagiso PMI dropped by 1.4 index points in March

Kagiso PMI dropped by 1.4 index points in March

Photo by Duane Daws

1st April 2014

By: Leandi Kolver

Creamer Media Deputy Editor

  

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The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) dropped by 1.4 index points to 50.3 in March, mainly driven by a decline in the new sales orders index, which dropped to its lowest level since 2006.

The new sales orders index fell by 6.8 points to 46.6, owing to weaker domestic demand, Kagiso Asset Management head of research Abdul Davids said.

“The demand weakness may have been exacerbated by the prolonged production stoppages in the platinum mining sector, which halted the need for supplies from specific manufacturing subsectors,” he explained.

Davids further pointed out that the decline in the March PMI brought the average for the first quarter of the year to 50.6, suggesting that the manufacturing sector was struggling to gain real momentum.

Banking group Investec said this suggested that the performance of actual manufacturing production would be weaker and consequently the contribution to the country’s gross domestic product, in the same quarter, would be smaller than that of the fourth quarter of 2013.

Meanwhile, BNP Paribas Cadiz Securities economist Jeffrey Schultz said the PMI leading indicator “suggested little in the way of a meaningful growth recovery in this side of the economy over the coming months”.

Davids said the South African manufacturing PMI also remained firmly below levels recorded in developed economies. “In the US, the preliminary manufacturing PMI nudged down to 55.5 in March from a 45-month high of 57.1 in February, while the
eurozone’s flash manufacturing PMI came in at 53, slightly down from 53.2 in February.”

However, he pointed out that China’s manufacturing PMI, which fell to an eight-month low of 48.1 points in March, was underperforming even South Africa.

Meanwhile, the business activity index returned to a level above the 50-point mark, after lingering below for three months running, which suggested a moderate acceleration in output. The index rose to 51 points from 48.8 in February.

Further, the price index eased marginally to 93 points from February’s record high of 95.1.

“The index remained exceptionally high and suggests considerable pressure on input costs, likely driven by the rand exchange rate that remains substantially weaker than 12 months ago,” Davids stated.

Investec said inflationary pressures remained a feature in the latest survey findings.

“Prices continued to rise rapidly, likely linked by manufacturers to higher prices of imported raw material and intermediate goods, resulting from rand weakness,” the bank said, adding that there was scope for these price pressures to further abate in the coming months, "given the retrace in the rand during the first quarter of 2014".

Moreover, commodity prices were expected to stabilise in view of the moderate nature of the global recovery, Investec said.

The employment index increased by 2.6 points to 51.8, while the inventories index returned to January’s level of 53.7, down from 59.6 in February.

Meanwhile, the index measuring expected business conditions in six months’ time fell to its lowest level since September last year; however, Davids noted that, at 54.5 index points, “manufacturers are less optimistic but still expect conditions to improve over the next few months”.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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