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Economic growth is expected to rebound in the second quarter after the recession.
Economic growth is expected to rebound in the second quarter after the recession.

Manufacturing index signals softer third quarter


Sunita Menon - Sep 4th 2017, 09:41

Economic growth is expected to rebound in the second quarter after the recession, but the Absa purchasing managers index (PMI) suggests the third quarter may be softer. 

The index was up to 44 points in August after slumping to 42.9 in July, the lowest level since the 2009 financial crisis. But the index remains below the 50-point mark, which divides expansion from contraction in the manufacturing sector.

Capital Economics economist John Ashbourne said that while the PMI tended to overstate downturns, it did signal a subdued third quarter.

"Even if the survey is overstating the weakness of manufacturing, it does suggest that, following a rebound in the economy in [the second quarter], conditions probably softened in the third quarter," he said.

Investec economist Kamilla Kaplan said: "The PMI averaged 43.5 in the first two months of [the third quarter] and, at this stage, suggests that the manufacturing sector may again weigh on GDP."

Kaplan said based on indications provided by the PMI, the second-quarter recovery would not be sustained into the third half of 2017.

On Friday, Absa said the manufacturing sector was still under pressure, which did not bode well for manufacturing output and overall GDP in the third quarter.

"The sector is experiencing difficult times, as reflected by the first-quarter and second-quarter 2017 performance," said Manufacturing Circle executive director Philippa Rodseth. "Given pressures experienced by the sector in terms of supply side challenges and subdued domestic demand, the statistics reflect current circumstances."

She said the PMI was a leading indicator of what to expect in the third quarter and the index did not bode well for the sector.

Second-quarter GDP figures are expected on Tuesday.
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Read more about: sa economy | production | pmi | manufacturing

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