April PMI dips but still above key level

South Africa’s purchasing managers’ index (PMI) dipped in April, a survey showed on Monday, but stayed above the crucial 50 level, suggesting manufacturing output remains on a recovery path after last year’s plunge.

The latest easing in PMI — a key indicator ahead of official manufacturing data — however points to the sector, one of the largest in the economy, remaining fragile after shrinking sharply in 2009 on depressed domestic and global demand.

The April PMI eased to a seasonally-adjusted 55,2 from 55,6 in March, sponsor Kagiso Securities said in a statement. Despite the decline — after another fall in March — PMI remained above the key 50 mark for the sixth month in a row.

“At this stage, we do not view the March and … April falls as concerning, but should rather be seen as a correction to a more sustainable level for the PMI,” Andre Coetzee, head of fixed income at Kagiso Securities said.

Latest available data shows South Africa’s annual factory output rose less than expected in February, highlighting that local demand, key to economic recovery, remains weak after the country’s first recession since 1992 slashed about 900 000 jobs.

In a note, Brait economist Colen Garrow said markets were uncertain about the sustainability of strength in the manufacturing sector, which also hinges on the global economic recovery, with some countries gradually withdrawing economic support measures put in place last year.

“As G20 [developing] economies begin withdrawing stimulus packages one after the other, the sustainability of the local recovery becomes less certain,” Garrow said.

The South African Reserve Bank joined other central banks in cutting rates to help spur the economy.

Governor Gill Marcus signalled late last month that domestic rates are likely to remain on hold for some time, but some analysts think there is still room for at least one more cut, adding to 550 basis points worth of reductions between December 2008 and March this year.

The Reserve Bank holds its next policy meeting on rates next week, and Marcus will announce its decision on May 13. – Reuters

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