PMI hits 6-year low - manufacturing staring down a struggle

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manufacturing_plant.top.jpgSouth Africa’s seasonally adjusted PMI index declined to its most depressed level since August 2009. The November index decreased sharply to 43.1 from 48.1 in October.


The PMI movement suggests weak economic growth in Q4. The average headline PMI for the first two months of Q4 is 4.4 index points below the third-quarter level.

 

This suggests that the sector is unlikely to sustain its recent rebound and, despite the absence of load shedding, growth could be much weaker in the final quarter of the year, said PMI index sponsor Barclays in a statement.


Weak demand remains one of the sector’s biggest challenges.


The expectation that the current weak demand environment will not improve significantly over the near term is likely to weigh on manufacturers’ willingness and ability to increase output, said Barclays.


It is the first time since the recession in 2009 that all of the PMI’s major sub-components are below the neutral 50-point mark, indicating a contraction in manufacturing.


New sales orders recorded the sharpest decline of the major subcomponents, slumping to 43.5 in November from 50.5 in October while business activity dropped further to 41.4 from 47.7 in October. Both new sales orders and business activity are now at their lowest level since April this year.


The employment index also fell, suggesting that the sector could continue shedding jobs.


Business conditions are not expected to be any better in the short term. The expected business conditions in six months’ time index slumped to an almost seven-year low of 43.2 index points.


"This suggests that manufacturers do not foresee a quick turnaround of the business environment," said Barclays.

 

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