Weak PMI figures signal economic stagnancy
South Africa may be facing economic uncertainty, according to subdued manufacturing data released on Tuesday.
The Kagiso purchasing managers’ index (PMI) increased marginally to 50.5 points in October from September’s 50.2.
While still above the benchmark figure of 50, which implies expansion, such a minor increase has left some economists worried about a lack of growth in manufacturing.
“This is definitely not an indication of the type of growth we need in the sector. It surprises me as we had some extensive industrial action in the middle of the year which should have led to an upswing by now,” Chris Hart, chief economist at Investment Solutions told the Mail & Guardian.
“The sector will struggle for the medium-term as Europe attempts to steady its finances and return demand to our manufacturers. Sluggish growth across the economy coupled with the above inflation wage increases will put further stress on our ability to recover, so we are faced with some tough times,” said Hart.
Tough economic conditions in Europe as well as slow economic growth across the globe are not the only reasons for a slow down in manufacturing.
“Usually by this time, PMI figures would have been higher as we run into the festive season. There are indications that manufacturers have been put under even further pressure by a weaker rand,” said senior economist at ETM, Kamilla Golda.
The rand hit its lowest level in over two years in September, falling to fell to R8.495 against the dollar.
It was still to recover, trading at R8.15 against the greenback in late trade on Tuesday after reaching the 6.50 to the dollar in May.
However, economists maintain the economic landscape has some good news as figures released on Tuesday by Statistics SA revealed an increase in employment.
A report released on Tuesday indicated that South Africa’s official unemployment rate marginally decreased to 25% in the third quarter of this year, from 25.7% in the second quarter.
This signals the total amount of unemployed people to be at 4 442-million in the three months to September, from 4 538-million for the three months preceding that.
“The encouraging labour figures released by Statistics South Africa may well offset these muted PMI figures. We are also yet to see the effect of the R25-billion industrial assistance package announced by Pravin Gordhan in the mid-term budget speech will do in terms of assisting manufacturing,” Standard Bank economist, Shireen Darmalingam, told the M&G.
Nonetheless, one shouldn’t get too optimistic.
“Economic data over the next few months might be a bit better than we at first anticipated but expectations are still low,” said Golda.