Figure 1: Manufacturing growth vs Absa PMI*
  • The PMI gauge for June moved further into contractionary territory, falling by 1.9 index points to 47.9, from May’s figure of 49.8
  • Looking at a disaggregation of the data, slowing demand was reflected in lower new sales orders, which descended below the 50 neutral level in June, after logging 51.5 in May. This propelled the fall in business activity, which dipped further into negative terrain, with a reading of 45.8, from May’s figure of 47.2 (see figure 2).
  • This is lowest point the business activity sub-index has reached “(s)ince December 2017, which does not bode well for a recovery in output growth”, according to the BER.
  • The sub-index tracking expectations with respect to future business conditions fell for the fourth month in a row to 55.7 in June. According to the BER, the recent spate of load shedding, coupled with growing trade war fears, increasing cost pressures and “(c) oncern that the uptick in demand (based on the new sales orders index) in the second quarter may not be sustained”, have stifled levels of optimism of late.
  • Manufacturing cost pressures lifted notably in June to 73.6, its highest level year to date, with the lift “(l)ikely. to a large extent, driven by the (on average) weaker rand exchange rate compared to May and the hefty fuel price increases over the recent months”, according to the BER.
  • After dipping marginally in May, the employment index fell a further 3.2 points in June, to 46.0. In order to achieve any meaningful job creation, growth in output needs to rise on a sustained basis.
  • The latest PMI reading is in line with global trends, with the global manufacturing PMI recording a nine-month low in May, according to Markit.
  • Although second quarter results so far have been disappointing, we are forecasting a small rebound in growth for this year, commencing Q3.18, which should boost demand moderately in the second half of the year.
Figure 2: Absa Purchasing Managers Index: results
Figure 3: SA versus global manufacturing PMI