The South African economy is struggling to support manufacturing, says SEIFSA
JOHANNESBURG, 3 JULY 2017 – The decline in the June 2017 ABSA Purchasing Managers’ Index (PMI) is a confirmation that the fundamentals of the South African economy are too weak to support the manufacturing sector, according to the the Steel and Engineering Industries Federation of Southern Africa (SEIFSA).
The PMI dropped to 46.7 index points in June 2017, down from 51.5 index points recorded in May 2017. On the whole, at the present level (below 50 index points) the index is indicative of contraction in the manufacturing sector.
“Following the sharp decline of the index in April 2017 to 44.7 index points, on the back of the unfortunate political events and the downgrades, we had welcomed the rebound in the May 2017 reading to 51.5 index points as a normalization of the trend, following a relative degree of overreaction to the heightened political noise and developments of April 2017,” SEIFSA Senior Economist, Tafadzwa Chibanguza said today.
Mr Chibanguza said, in addition to the weak economy, the manufacturing sector had experienced a gradual and painfully slow erosion of confidence and production capacity.
He said 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. This was also very evident in SEIFSA’s first quarter review of the metals and engineering sector, wherein those sub-industries with lower export-to-output ratios and more reliant on the domestic economy for orders, performed the worst and, in fact, contracted in all instances.
“Unfortunately, the stronger rand in June 2017 would not have contributed any upside to export prospects, hence the broad deterioration in the PMI indices. Manufacturers would have faced headwinds both at home from a slowing economy which is in a technical recession and outside of its boarders because of a stronger rand,” Mr Chibanguza said.
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