Economists fear setback for stabilising manufacturing sector
By Sunita Menon - Apr 4th 2017, 12:33
While the March figures are positive upheavals in the political environment may hurt.
The Absa manufacturing purchasing managers index (PMI) held steady in March, indicating potential growth in the sector, but economists fear this may change because of recent political events.
The PMI came in above the neutral 50-point mark for the third successive month and only dipped slightly lower in March at 52.2 points, from February’s 52.5 points. All five major subcomponents of the index came in above 50 points for the first time since 2012.
Manufacturing Circle executive director Philippa Rodseth said that while the figures were a positive indication for output growth the sector was very responsive to its environment and vice versa.
The PMI averaged just 49.1 in 2016, indicative of a contraction.
"Manufacturing’s performance has been erratic over the medium term and the sector is fragile. Not only do we need consistency and stability with regard to supply-side conditions, we also need a demand pull which is linked to positive economic growth," Rodseth said.
Capital Economics economist John Ashbourne said the March reading of the index boded well for the sector. "The index has tended to underestimate the strength of the manufacturing sector rather than overestimate it. We expect that the political events of late March will weigh on the economy in April. Though the primary route will be through a blow to business confidence."
BNP Paribas Economist Jeffrey Schultz said: "The index points to some stabilisation in the industry for the first quarter. We can expect a bigger contribution to GDP from both the mining and manufacturing sectors." He said that the Cabinet reshuffle would not do the economy any favours.
"Business confidence for this industry remains at weak levels. There will definitely be less optimism for the next month or two. While it’s difficult to say what the economic impact is going to be, confidence and fixed investment are going to backtrack from [an] already weak stance."
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