The April PMI had fallen into contractionary territory after having averaged 51.9 in Q1.17. The survey report recognised the decline as sentiment driven, following the cabinet reshuffle and subsequent credit rating downgrades in March/April. The normalisation in the survey outcome in May suggests that the April decline was therefore not led by underlying fundamental shifts in demand and activity.


The May PMI survey reflected an upturn in new orders and production. In April, survey respondents had expected domestic demand to weaken but the reversal in the business activity sub index, of a sizeable 15.3 points, suggests that “actual developments on the factory floor” had been overstated in April. In addition, the survey report noted that “(a)lthough the series is adjusted for seasonal changes, the higher number of trading days in May compared to April likely also helped to boost activity.”


Looking ahead, a synchronised upturn in global economic activity and higher global trade momentum should lend support to local export orientated manufacturers. Domestic demand should strengthen somewhat, with improved market conditions in the allied agriculture and mining industries on respectively, dissipating drought effects and higher commodity prices.


In May, the rate of operating cost inflation slowed on lower international oil prices and a stronger exchange rate. This will have alleviated cost inflation of imported raw materials and intermediate goods.


Despite the improvement in the PMI gauge, the levels in the vicinity of 50, remain consistent with ultimately modest growth in the sector. This suggests employment prospects in the sector will remain muted. In May, the employment sub-index fell back below 50 to 47.4 suggesting staffing levels were reduced.