South African’s manufacturing sector is stuck in a quagmire and will drag economic growth even lower.
Key indicator Barclays purchasing managers’ index (PMI) on Monday showed a sixth consecutive drop last month.
As inventories continue to outstrip new sales orders, manufacturing production will be muted; this points to weak economic growth and more job losses in the sector.
Given that manufacturing is the fourth biggest contributor to gross domestic product, this bodes ill for the economy.
At
43.5, the PMI was more than five index points below last year’s
average. The 50 point is neutral and anything below that indicates
contraction.
The drop in SA’s and China’s PMI pushed the rand over the R16/$ barrier after it broke through the psychologically key level at the weekend although it recovered late in the day. The JSE and Shanghai Composite both closed down on the news.
China’s official PMI slipped to 49.4 from 49.7. A private survey, the Caixin-Markit China Manufacturing PMI, underscored the trend by showing factory activity shrinking for an 11th month. The PMI of SA’s other leading trade partner — the eurozone – also contracted, although it remained above the 50 mark.
Barclays Africa economist Miyelani Maluleke said the economy could grow less than the 0.9% estimated for this year if the agriculture sector remained under pressure and manufacturing stayed in line with the recent PMIs. Of concern is that the sector does not expect conditions to improve this year.
A sub-index measuring conditions in six months’ time declined sharply to an almost seven-year low of 39.4.
MMI Investments economist Sanisha Packirisamy said the severe drought, low commodity prices and anaemic global trade were likely to limit the contribution agriculture, mining and manufacturing would make to economic growth.
New sales orders fell 4.1 index points to 40.7.
This reading, barring January 2009, was the lowest on record for the month, strongly indicating how much of an effect muted demand is having.
The employment index also fell, suggesting further job losses. It has been below 50 for 24 months in a row.
Rising costs are yet another factor that will weigh on manufacturers’ ability to employ more people. The price index rose sharply to 86 points — the highest level in almost two years — as a persistently softer rand pushed up the costs of materials and intermediate products required in manufacturing.
The gloomy manufacturing activity news came as the North West University School of Business and Governance on Monday released a new index showing high levels of policy uncertainty in the fourth quarter of last year. Such lack of clarity makes private sector companies invest less and is a drag on economic growth and employment.
The index was recorded at 55.4, where an increase beyond 50 reflects greater uncertainty, while a decrease showed less uncertainty.
The sacking of Nhlanhla Nene as finance minister and negative assessments of SA’s economy by rating agencies in December, an interest rate hike in November, and lacklustre global economic growth were all among factors that contributed to policy uncertainty.
President Jacob Zuma’s state of the nation address and Finance Minister Pravin Gordhan’s budget speech later this month could reduce policy uncertainty by sending a clear message that SA was getting its economic house in order, professor at the graduate school of business at the North West University’s school of business and governance Raymond Parsons said.
"If we can bring policy uncertainty down and show the credit rating agencies, trade unions, business and the man on the street that we have a clear direction in the way ahead, this will be good for growth and good for jobs," Mr Parsons said.
He identified the "very controversial" Promotion and Protection of Investment Bill as one of those causing uncertainty.
The South African Chamber of Commerce and Industry (Sacci), Small Business Project and Black Business Council are expected on Tuesday to call on policy makers to conduct proper regulatory impact assessments and consultations before introducing bills.
"Policy uncertainty is an obstacle to growth, especially if it is not enhancing the private sector," Sacci economist Richard Downing said. Some of the bills businesses have had problems with are the Promotion and Protection of Investment Bill, the Tax Laws Amendment Act, the Expropriation Bill, the Immigration Act and visa regulations, and new regulations and amendments to existing liquor, tobacco and fast food laws.
The policy uncertainty index is compiled by tracking opinions of leading private-sector economists; responses from a Bureau for Economic Research survey of manufacturers on the political climate and whether it is a constraint to doing business; and the frequency of references to policy-related economic uncertainty in leading publications.
With Reuters
Key indicator Barclays purchasing managers’ index (PMI) on Monday showed a sixth consecutive drop last month.
As inventories continue to outstrip new sales orders, manufacturing production will be muted; this points to weak economic growth and more job losses in the sector.
Given that manufacturing is the fourth biggest contributor to gross domestic product, this bodes ill for the economy.
The drop in SA’s and China’s PMI pushed the rand over the R16/$ barrier after it broke through the psychologically key level at the weekend although it recovered late in the day. The JSE and Shanghai Composite both closed down on the news.
China’s official PMI slipped to 49.4 from 49.7. A private survey, the Caixin-Markit China Manufacturing PMI, underscored the trend by showing factory activity shrinking for an 11th month. The PMI of SA’s other leading trade partner — the eurozone – also contracted, although it remained above the 50 mark.
Barclays Africa economist Miyelani Maluleke said the economy could grow less than the 0.9% estimated for this year if the agriculture sector remained under pressure and manufacturing stayed in line with the recent PMIs. Of concern is that the sector does not expect conditions to improve this year.
A sub-index measuring conditions in six months’ time declined sharply to an almost seven-year low of 39.4.
MMI Investments economist Sanisha Packirisamy said the severe drought, low commodity prices and anaemic global trade were likely to limit the contribution agriculture, mining and manufacturing would make to economic growth.
New sales orders fell 4.1 index points to 40.7.
This reading, barring January 2009, was the lowest on record for the month, strongly indicating how much of an effect muted demand is having.
The employment index also fell, suggesting further job losses. It has been below 50 for 24 months in a row.
Rising costs are yet another factor that will weigh on manufacturers’ ability to employ more people. The price index rose sharply to 86 points — the highest level in almost two years — as a persistently softer rand pushed up the costs of materials and intermediate products required in manufacturing.
The gloomy manufacturing activity news came as the North West University School of Business and Governance on Monday released a new index showing high levels of policy uncertainty in the fourth quarter of last year. Such lack of clarity makes private sector companies invest less and is a drag on economic growth and employment.
The index was recorded at 55.4, where an increase beyond 50 reflects greater uncertainty, while a decrease showed less uncertainty.
The sacking of Nhlanhla Nene as finance minister and negative assessments of SA’s economy by rating agencies in December, an interest rate hike in November, and lacklustre global economic growth were all among factors that contributed to policy uncertainty.
President Jacob Zuma’s state of the nation address and Finance Minister Pravin Gordhan’s budget speech later this month could reduce policy uncertainty by sending a clear message that SA was getting its economic house in order, professor at the graduate school of business at the North West University’s school of business and governance Raymond Parsons said.
"If we can bring policy uncertainty down and show the credit rating agencies, trade unions, business and the man on the street that we have a clear direction in the way ahead, this will be good for growth and good for jobs," Mr Parsons said.
He identified the "very controversial" Promotion and Protection of Investment Bill as one of those causing uncertainty.
The South African Chamber of Commerce and Industry (Sacci), Small Business Project and Black Business Council are expected on Tuesday to call on policy makers to conduct proper regulatory impact assessments and consultations before introducing bills.
"Policy uncertainty is an obstacle to growth, especially if it is not enhancing the private sector," Sacci economist Richard Downing said. Some of the bills businesses have had problems with are the Promotion and Protection of Investment Bill, the Tax Laws Amendment Act, the Expropriation Bill, the Immigration Act and visa regulations, and new regulations and amendments to existing liquor, tobacco and fast food laws.
The policy uncertainty index is compiled by tracking opinions of leading private-sector economists; responses from a Bureau for Economic Research survey of manufacturers on the political climate and whether it is a constraint to doing business; and the frequency of references to policy-related economic uncertainty in leading publications.
With Reuters
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