A foundry worker handles a mold frame in this file photo. A foundry worker handles a mold frame in this file photo.
Johannesburg - Green shoots have started to show in the recovery of the South African economy, with the manufacturing sector starting 2017 on a relatively solid footing and the Absa Purchasing Managers Index (PMI) coming in above the neutral 50-point mark for the first time in six months.
The PMI rose to 50.9 points in January, up from 46.7 points in December 2016, according to data released yesterday.
Anything above the 50 point mark is growth and anything below is contraction.
That there is a light at the end of the tunnel was also demonstrated by data released on Tuesday, showing that growth in credit demand by South Africa’s private sector rose to an annualised 5.1 percent in December from 4.6 percent in November, mainly driven by credit to companies.
Yesterday saw a slew of upbeat manufacturing PMIs from around the world, suggesting a rebound in global growth.
The South African PMI is compiled by BER and sponsored by Absa. The new sales orders index managed to remain above 50 points for a straight month, although the index declined to 50.4 points from 50.9 points.
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Absa said the sustained uptick in orders filtered through to output levels. “As such, the business activity index rose to 52.7 points, the best level since June 2016.
"The employment index also improved. However, the latter remained below the neutral 50-point mark. The index measuring suppliers’ performance recovered smartly to 53 points in January.”
Sanisha Packirisamy and Herman van Papendorp, economists at Momentum, said the survey suggested that an expected improvement in the agricultural sector could support demand for manufactured goods in upcoming months, although sluggish consumer spend remained a risk.
“The BER noted that respondents were slightly less upbeat about exports in January, attributing this to the recent strengthening in the rand.
"Though the threat of rising protectionism remains a key downside risk to global trade activity over the longer term, improving growth momentum in South Africa’s key trading partners could drive a modest recovery in exports this year. “
Packirisami and Van Papendorp said PMI data for South Africa’s largest export destination, China, surprised to the upside.
They said China’s official manufacturing PMI came out marginally higher than expected, at 51.3 points in January, pointing to solid manufacturing activity.
“Meanwhile, the non-manufacturing (services) PMI rose to 54.6 points over the same period, notwithstanding a slowdown in the Chinese construction sector in response to a cooling property market.”
The Momentum economists said similarly, the Eurozone PMI signalled optimism in the region’s manufacturing sector.
“The Eurozone manufacturing PMI rose to a six-year high, despite heightened uncertainty related to a set of elections and referenda to be held this year in many countries belonging to EU, including the Netherlands, France and Germany.
"Encouragingly the employment and price sub-indices picked up.
"The latter signalling a faster rise in inflation, which remains some way off from the European Central Bank’s target of 2 percent.”
They said the BER noted that respondents were slightly less upbeat about exports in January, attributing this to the recent strengthening in the rand.