The disappointing numbers show that between September 2016 and this month the Purchasing Managers’ Index (PMI) fell by 7.9%.
SEIFSA Senior Economist Tafadzwa Chibanguza said that it is concerning that the PMI indicates a continuing slump across all comparable periods. In the year-to-October 2016, the index decreased by 2.8% when compared to the corresponding period in 2015. Also, when the 12-month period ending in October 2016 is compared to the previous 12 months, a worrying 5.2% slump is noticeable.
Mr Chibanguza said that the October 2016 PMI reading spells great concern for the metals and engineering sector and represents a deeper contraction for a sustained period.
He added that the PMI’s business activity sub-index, which leads the metals and engineering sector by 12-14 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 -3% for the metals and engineering sector,” said Mr Chibanguza.
He explained that in conjunction with these comparative figures, this unfortunate scenario is further compounded by the fact that the October 2016 index (which is at 44.5) is below the neutral level of 50 – a point indicative of a contraction. The 10-month average for 2016 is 47, while the 12-month average recorded the same amount. This represents greater contraction for longer in the metals and engineering sector.
Mr Chibanguza highlighted that what stood out from the October 2016 PMI reading is the fall in the Expected Business Conditions sub-index by 20.7% when October 2016 is compared to September 2016. The index is down by 12.1% when the 12-month period ending in October 2016 is compared to the previous period.
“This, unfortunately, is characteristic of the sentiment currently prevailing in the South African economy and gives insight to the perception of businesses and their probability to invest further in the local economy. This was evident in the declining gross-fixed capital formation trend tabled in the mid-term budget policy statement,” said Mr Chibanguza.
“While the October 2016 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,” Mr Chibanguza concluded.