South Africa’s purchasing managers index (PMI) fell to a record low in July, pointing to growing pressure on manufacturing activity as world growth slows and higher local interest rates bite.
The PMI dipped to 42,8 last month — its lowest level since the survey began in 1999 — from 43,8 in June on a seasonally adjusted basis, slipping further away from key 50 cut-off line between contraction and growth, sponsor Investec said.
”This is testimony to the headwinds facing the manufacturing sector,” Mokgatla Madisha, portfolio manager at Investec Asset Management, said.
The main drag on the overall index was a sharp decline in new sales orders, which plunged to 37,9, while business activity remained lacklustre and inventory levels showed a significant fall.
Madisha said the recent weakness in the sector was in line with other surveys for manufacturing but this was yet to be reflected properly in official production data.
Statistics South Africa data put manufacturing growth at 0,7% year-on-year in May.
”This [lower sales, business activity] does not bode well for activity in the manufacturing sector over the near term, pointing to a further reduction in demand consistent with weaker purchasing manager expectations of business conditions in six months,” he said.
The PMI employment index fell to 42,4 in July from 44 previously, suggesting manufacturers are shedding jobs, keeping pressure on already high unemployment. The official jobless rate stands at 23%.
Price pressures are persisting, however, complicating the outlook for interest rates. The survey’s price index rose to 91,8 after falling marginally in June.
”While the recent oil price decline coupled with some appreciation of the currency will bring some relief going forward, rising transport and energy costs continue to threaten a recovery in the sector,” Madisha said.
South Africa’s central bank is battling to contain inflation, having raised its repo rate a total five percentage points to 12% over the past two years.
The targeted CPIX consumer inflation hit a record 11,6% in June, backing the case for another rate increase this month.
But pressure on manufacturing and signs other sectors are under strain may ward off further monetary policy tightening. – Reuters