Johannesburg, 1 November 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about the dip in overall business activity in the broader manufacturing sector, as reflected in the Absa Purchasing Managers Index (PMI) released today. Speaking after the release of the Index, SEIFSA Economist Marique Kruger said given that the PMI is an indicator of the economic health of the broader manufacturing sector, of which the metals and engineering (M&E) cluster is part, the data highlight that the sector is still facing significant challenges.
The overall headline PMI data indicate that manufacturing activity in the country declined for a third consecutive month to 42.4 percent in October 2018, from 44.5 percent in September 2018, with the seasonally-adjusted index moving further away from the neutral level of 50, which separates expansion from contraction.
“The consistent decrease in the PMI data highlights the challenging operating environment of business amid prevailing low levels of domestic demand, increasing input costs as a result of a generally weak exchange rate and increasing fuel prices which negatively impact on escalating logistics costs,” said Ms Kruger.
She added that the headline PMI and its five main sub-indices play an important role in businesses’ decision-making processes. The business activity index, which enables manufacturers to gauge production activity and output levels in the sector, remained largely unchanged at 40.3 percent in October 2018. He said the index had performed poorly on a consistent basis since March 2018, and that its poor performance was concerning for manufacturers in the sector, especially given the low domestic demand levels.
“The best performer was the employment sub-index which improved from 43.3 percent in September 2018 to 44.2 percent in October 2018. Given that the employment sub-index gives an indication of the possible movement in employment numbers in the domestic economy, the uptick is encouraging. This is especially so following the release of the Quarterly Labour Force Survey on Tuesday, which indicated that unemployment increased to 27.5 percent in the third quarter of 2018,” she said.
In conclusion, Ms Kruger said that she expected businesses in the sector to take advantage of the weaker exchange rate towards an improvement in export volumes and increased demand for exported products, which will invariably have a positive impact on the sector’s performance.