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01 Dec 2008 12:22
South Africa’s purchasing managers index fell to a record low in November, data showed on Monday, reinforcing calls for a cut in interest rates possibly as early as next week.
The PMI slumped to an all-time low of 39,5 in November on a seasonally adjusted basis from 46,2 in October, reflecting a weaker local and global economic outlook, sponsor Investec said.
Business conditions deteriorated significantly during the month, with the business activity and new sales orders indices also hitting record lows, it said in a statement.
The PMI index is a measure of the country’s underlying manufacturing activity, which has been under strain amid slower world growth and cooling domestic consumer spending, weighed down by a series of interest rate hikes.
“Given the sharp domestic and global economic slowdown, the manufacturing sector continues to operate under severe pressure,” said Mokgatla Madisha, portfolio manager at Investec Asset Management.
“While managers seem positioned for further deterioration in business conditions, the sector may face further headwinds over the medium term,” he said.
The expectations index collapsed by almost 20 index points to 29,9, its lowest since the inception of the survey in September 1999.
Most analysts expect rates to be cut from early next year, although signs that the economy is struggling more than expected could sway the central bank to move sooner.
Markets are pricing in big cuts over the next year, starting next week, despite inflation remaining high—at double the top end of the 3% to 6% target range—albeit slowing.
Consumers in Africa’s biggest economy are battling to cope with high borrowing costs, following the central bank’s five percentage points in rate hikes between June 2006 and June 2008. The repo rate stands at 12%, a five-year high.
Official data last week showed economic growth slowed to a decade low of 0,2% quarter-on-quarter in the third quarter of 2008.
Manufacturing, mining and the retail and wholesale sectors—which together make up about one-third of the economy—all contracted during the period.
“We were expecting the PMI to be weak, but this is even softer than expected,” Razia Khan, head of research for Africa at Standard Chartered in London, said before calling for an early rate cut.
“The all-time record low in PMI will drive home the fact that these are not normal times, the ‘normal’ considerations when it comes to monetary policy do not apply,” Khan said.
Central bank Governor Tito Mboweni will announce the next move on interest rates on December 11, after a two-day meeting of the bank’s monetary policy committee.
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