The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has expressed concern at the continuing contraction in the metals and engineering sector, as indicated by the Purchasing Managers’ Index (PMI) data released by the Bureau for Economic Research and Barclays on Tuesday.
  
Seifsa senior economist Tafadzwa Chibanguza said it was worrying that the PMI indicated a continuing slump across all comparable periods.

In the year to October, the index decreased by 2.8% compared with the corresponding period in 2015.

Also, when the 12-month period ending in October is compared with the previous 12 months, a worrying 5.2% slump is noticeable.
 
Chibanguza noted that the October PMI reading represented a deeper contraction for a sustained period.  
 
He added that the PMI’s business activity subindex, which leads the metals and engineering sector by 12 to 14 months and is an important indicator for the sector’s production performance, is also “gravely concerning”, regardless of how one analyses it. 
 
“These readings paint a picture that is a lot more bearish than our 2016 forecast of [a 3% contraction] for the metals and engineering sector,” Chibanguza stated.
 
He explained that, in conjunction with these comparative figures, this scenario is further compounded by the fact that the October index is below the neutral 50-point level – which is indicative of a contraction.

The ten-month average for 2016 is 47, while the 12-month average recorded the same figure. This represents a greater contraction for longer in the metals and engineering sector.
 
Chibanguza said that what stood out from the October PMI reading was the 20.7% month-on-month fall in the expected business conditions subindex.

The index is down by 12.1% when the 12-month period ending in October is compared with the previous 12-month period.
 
He pointed out that this was characteristic of the sentiment currently prevailing in the South African economy, giving insight into the perceptions of businesses and their likelihood of investing further in the local economy.

“While the October PMI reading provides us with a better understanding of the state of mind of manufacturers, unfortunately, it affirms our view of further contraction in the metals and engineering sector for a longer period,” Chibanguza said.