The decline in the April headline PMI reflected a sharp weakening in business activity and purchasing commitments (see figure 2). The respective declines of 16.5 and 14.7 in these sub-indices were the second largest on record.
The new sales orders sub-index also fell below 50 for the first time in five months. Survey respondents reported ongoing improvements in export orders but expect domestic demand to weaken. Domestic factors are therefore responsible for the sharp moderation in expected business conditions for the next six months.
The deterioration in sentiment was not borne out in employment levels, with modest additions to headcounts for the second consecutive month in April.
In April, manufacturers reported experiencing stronger input cost pressures, linked to rand depreciation and a rise in international oil prices. However, cost pressures still remain well below recent peaks in Q1.16.
The survey report noted that “this was the first full survey after the recent cabinet reshuffle and subsequent sovereign credit rating downgrades. It is likely that respondents now anticipate economic growth and domestic demand to be weaker than before.”
It is difficult to infer from a single PMI reading whether conditions in the manufacturing sector will deteriorate on a sustained basis. Notwithstanding the recent political events, the economy is still expected to have sufficient momentum to yield improved growth outcomes in 2017, compared to the 0.3% growth in 2016.
A synchronised upturn in global economic activity, higher commodity prices and a recovery from drought conditions in the domestic agriculture sector are expected to lend support this year.