South Africa’s purchasing managers index (PMI) fell to 43,8 in June from 49,1 in May on a sharp slowdown in business activity, sponsor Investec said on Monday.
The index, a measure of underlying manufacturing activity, showed demand in the economy continued to weaken last month, with the new sales orders component dipping to its lowest level in five years.
The overall index was just off the near-five-year trough recorded in March and was below the key 50 mark that signals expansion for the fourth time in five months.
”A sharp slowdown in business activity contributed significantly to the decline in the overall index,” said Andre Roux, head of fixed income at Investec Asset Management. ”The seasonally adjusted business activity index fell to 38,7, lower than the readings posted in 2003 when the sector was in recession.”
Higher interest rates are beginning to bite into consumer spending, hitting demand in the manufacturing sector.
The central bank has raised its repo rate by 500 basis points to 12% since June 2006 to try tame inflation and previously robust spending.
While spending has eased price pressures continue to build.
Investec said pressure on input prices persisted, with that index remaining above 90 for the fourth consecutive month, although it dipped slightly to 90,8 from May’s 91,1.
The employment index fell to 44, pointing to companies cutting jobs, which would add to already high unemployment, officially estimated at 23%.
”The unfavourable outlook for the sector is likely to provide further headwinds to the employment trajectory,” Roux said.
Investec said a combination of slowing demand and input cost pressures was reflected in falling purchasing commitments and weaker readings for expected business conditions in six months.
”The sector is facing significant headwinds over the medium term.” – Reuters