PMI Gains Momentum

SOUTH AFRICA - In Brief 02 Sep 2013 by Iraj Abedian

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The seasonally adjusted purchasing managers’ index (PMI) climbed from 52.2 points in July to 56.5 points in August 2013. This outcome paints an encouraging picture for manufacturing conditions in South Africa and correlates positively with recent gross domestic product figures.

However, despite signs of improvements – albeit gradually – in the economic prospects of SA’s main global trading partners, the reality on the ground in SA is that a key segment of the manufacturing sector (i.e. the automobile manufacturing industry) is currently facing difficulties. An impasse in wage negotiations between unions and employers has resulted in a general strike. Similar tensions have also gripped the mining sector. Indeed, such an environment does not inspire confidence. Therefore, we are of the view that today’s outcome could be construed mainly as a pass-through of improved confidence/activity in SA’s trading partners coupled with a weak rand. A rebound in economic activity in the eurozone and the US will certainly have positive spillover effects on SA through trade linkages.

Against this backdrop, there is need for cautious optimism. Domestic factors at present are unstable, and could well spoil the party, particularly if industrial relations tensions persist. A prolonged instability would erode confidence and undermine the positive PMItrend. As a matter of fact, the PMI leading indicator is not reassuring.