Manufacturing still in doldrums but outlook improves

5 Oct 2016

Numbers coming out on manufacturing activity suggest the sector was not a big contributor to third-quarter growth.

Manufacturing still in doldrums but outlook improves

The Barclays purchasing managers index, released on Monday, rose 3.2 points in September. However, at 49.5 index points, the measure remained below 50 for a second consecutive month. A reading below 50 suggests a contraction in activity.

Manufacturing and mining were the biggest contributors to second-quarter growth.

The September reading indicated an ongoing downturn in manufacturing, Investec economist Kamilla Kaplan said.

The index is compiled by the University of Stellenbosch’s Bureau for Economic Research, which surveys industry players.

In this latest instalment, participants expect better conditions in the next six months.

The improvement in the six-month outlook suggested that most of those surveyed thought conditions would improve in 2017, Capital Economics Africa economist John Ashbourne said.

"Which is fair — almost all forecasters expect growth will pick up a bit next year. The consensus is that the worst is over and we should soon be seeing signs of a sustained recovery," Ashbourne said.

The upbeat sentiment is driven by expectations of lower prices.

The price index on the survey fell for a third month to a near-six-year low of 59.7, helped by a firmer rand and lower fuel prices.

Surveyed executives are also optimistic after recording higher export orders.

BNP Paribas Cadiz Securities economist Jeff Schultz said the moderation in the survey’s price index was the most encouraging development and boded well for the medium-term inflation outlook, "which we continue to think has the potential to surprise significantly to the downside" in 2017.

Barclays Africa said some manufacturers might benefit from an expected turnaround in agriculture as the effect of the most severe drought in decades diminished.

However, conditions remain tough for producers.

The average index reading in the third quarter was well below the second-quarter average, suggesting a slowdown in quarter-on-quarter manufacturing production growth after a solid performance in the second quarter, Barclays Africa economists said.

Although four of the five main index subcomponents increased, only the business activity and suppliers’ performance indices came in above 50 points.

New sales orders continued to point to subdued demand.

The employment index fell below 50 for the first time since June, strongly suggesting more factory jobs will be lost.

The inventories index rose, edging back above the level of the new sales orders index, pulling down the leading indicator.

Source: Business Day

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