Johannesburg, 1 October 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) notes with concern that the seasonally-adjusted Absa Purchasing Managers’ Index (PMI) released today for September 2018 remained largely unchanged, with the lower-than-expected level being indicative of a fragile economy.
The latest seasonally-adjusted preliminary PMI data show that the composite PMI trended lower in September 2018, when compared to the previous month of August 2018. The data show a very weak level of 43.2 points recorded in September 2018, when compared to a less-than-inspiring performance of 43.4 points registered in the month of August 2018.
“The deteriorating trend confirms the challenges faced by businesses amid increasing operational costs underpinned by a volatile exchange rate, rising energy costs and galloping petrol prices,” SEIFSA Chief Economist Michael Ade said.
He added that given the poor GDP growth recorded in the second quarter of 2018, the performance of the PMI in the third quarter of 2018 is worrisome as it invariably adds to concerns of whether the South African economy will rebound immediately from the prevailing technical recession.
Moreover, the PMI data which capture the third consecutive decline from July 2018, also registering a sharp contraction for the month of August 2018, correlate with consistent declines in both the business expectation and the business confidence indices over the same period, thereby adding to the stress faced by businesses. The PMI for September 2018 is the lowest since January 2017. Dr Ade said there were indications that the PMI may get worse next month, unless there is a clear policy direction from Government in the short to medium term.
He warned that as the country eagerly looks forward to Finance Minister Nhlanhla Nene’s Medium-Term Budget Policy Statement (MTBPS) for implementation detail on the President’s proposed stimulus package aimed at returning the economy to good health, businesses were likely to continue to operate under increasing operational costs. He said the rand will continue to yo-yo up and down, fuelled by increased uncertainty, capital flow will continue to respond negatively to changes in expected returns and the uncontrollable petrol price will add to increasing logistic costs, thereby squeezing what is left of business margins further.
“It is a challenging time for purchasing executives. Also, the current economic environment is problematic to businesses, which must also worry about negative external supply shocks and rising domestic costs of doing business while planning production processes.
“Hopefully, the upcoming job summit will provide some reassurances to South Africans and the business community at large of the Government’s ability to steer the ship back to safety. Importantly, a nod is needed from Moody Investors Services – the only big credit-rating agency not to have downgraded South Africa’s sovereign debt to junk – which still has the country’s rating a notch above sub-investment grade, when it conducts its review later this month,” Dr Ade concluded.
Tel: (011) 298 9411 / 082 602 1725