South Africa’s Purchasing Managers Index (PMI) fell to a four-and-a-half year low of 46,4 in February, knocked by slowing demand and a crippling power shortage, sponsor Investec said on Monday.
The fall in the index, a measure of manufacturing activity, from 52,1 in January reflected lower new sales orders and marked the first decline below the 50 mark, which separates expansion from contraction, since 2003.
The index was at its lowest level since September 2003.
”In all likelihood, the decline reflects not only the effect of softening in the real economy, but also the impact of the electricity crisis in the sector,” said Andre Roux, head of fixed income at Investec Asset Management.
Eskom is struggling to meet demand, leading to costly outages that are expected to hit the economy.
Mines were forced to halt production for five days in January after Eskom, hobbled by ageing infrastructure, said it could not guarantee supply. Mining output is forecast to be lower in 2008, while manufacturers have also been hard hit.
All consumers have been asked to cut demand as the state-owned company tries to ramp up spending on new capacity, and restrictions are expected to last for years.
Investec said the seasonally-adjusted business activity index dropped to 42,4 from 50,5, its lowest level since the survey started in 1999. New sales orders also fell below the 50 mark, dropping to 46,2.
”This index is now in line with readings posted in 2003, when the manufacturing sector was in recession,” Roux said in a statement.
Price pressures
The tight business conditions were aggravated by a significant increase in input price inflation, with that index surging to 86,8 in February from 79,5.
The rise points to continuing pressure on inflation from a weaker rand and strong commodity prices.
South Africa’s targeted CPIX inflation jumped to 8,8% year-on-year in January, a near five-year high, spurred by sharply rising fuel and food prices.
The expected acceleration in inflation has raised fears interest rates may have to rise again, but clear evidence the economy may be slowing as a result of previous rates hikes and the energy crisis, may stave off further policy tightening.
Investec said its employment index plunged to 44,1, pointing to companies shedding jobs, after coming in above 50 for 20 consecutive months.
”Even though this reading may have been influenced by the electricity blackouts, it also points to the likelihood that manufacturers have begun to cut back on employment in response to the deterioration in business conditions,” Roux said.
South Africa’s official unemployment rate remains stubbornly high at 25,5%.
Investec said although the inventory index picked up slightly to 53,2, suggesting purchasing managers may be expecting conditions to alleviate in the next few month, business expectations for conditions in six months fell to its lowest level since 1999. – Reuters