South Africa’s purchasing managers’ index (PMI) dropped to 49,1 in May on a seasonally adjusted basis from 54,1 in April, pressured by weak new sales orders and higher production costs, sponsor Investec said on Monday.
The index, a measure of underlying manufacturing activity, was below the key 50 level that signals expansion.
Investec said the manufacturing sector had felt the impact of significant increases in input costs, as shown in the producer price index for April, which accelerated to 12,4% year-on-year from 11,9% in March.
New sales orders continued to disappoint, with the seasonally adjusted index slowing to 46,3 from 53,2 in April.
Manufacturing employment growth also remained sluggish, said Investec.
”Electricity constraints and a general moderation in demand are likely to maintain downward pressure on employment,” said Andre Roux, head of fixed income at Investec Asset Management.
South Africa has grappled with shaky electricity supplies since the start of the year as state-owned utility Eskom struggles to generate enough power to meet demand.
But Roux said the weak first quarter showing, largely caused by the electricity woes, may be followed by a firmer second quarter as the manufacturing sector makes up for lost production.
Investec said a more competitive rand exchange rate may support the manufacturing sector in the future. However, capacity constraints in the form of skills shortages and the power issue, as well as weakening global and local demand, may hamper a recovery in the near term.” – Reuters