Manufacturers continue to be under pressure and the outlook for the sector in 2016 is not optimistic.
This is despite a slight increase in the seasonally adjusted Barclays Purchasing Managers’ Index (PMI,) which rose to 45.5 index points in December 2015. This was an improvement from the more than six-year low of 43.3 points in November. Despite the uptick in December, the average of 45.6 index points for the fourth quarter was 4.5 index points below the level recorded in the third quarter, says Barclays in a statement.
It says this suggests that, after output staged a significant rebound in the third quarter, production growth is likely to come under renewed pressure in the fourth quarter.
Barclays Africa economist Miyelani Maluleke notes the sector is “not looking so great” and still “very weak” as the figure is below the key 50 neutral point.
He adds there has not been much improvement in demand and the lack of confidence among those surveyed indicates further weakness. Maluleke also comments that it does not seem that the sector has taken advantage of the weak rand, wither through increased local sales or exports.
Indeed, manufacturing production, as measured by Statistics South Africa, declined by 1.7 percent and 1.2 percent (month-on-month, seasonally adjusted) in October and November respectively.
As a result, barring an unlikely strong performance in December, the sector is likely to contract on a quarter-on-quarter basis in the fourth quarter of 2015.
Amid increasing drought conditions and continued pressure on the mining sector, this does not bode well for overall gross domestic growth. Manufacturing accounts for 13 percent of SA’s gross domestic product.
“It doesn’t paint a particularly encouraging picture,” says Maluleke.
Despite the weak headline figure, it was encouraging that all of the major subcomponents of the PMI increased in December, albeit slightly.
Most notably, the index measuring suppliers’ performance rose back above 50 points for the first time since July 2015. Business activity remained very weak as the index only rose by 1 point to 42.4 in December. This was likely due to demand also remaining sluggish. The new sales orders index only increased to 44.8 index points from 43.5 in November.