Recession alarm bells for SA grow louder

Johannesburg – A bleak Barclays purchasing managers’s index (PMI) in January has signalled tough conditions in South African manufacturing and increased chances of a recession.

The seasonally adjusted PMI released yesterday slipped to 43.5 points from 45.5 points in December, staying below 50 points for six successive months in contractionary territory. Of the nine subcategories, only two registered improvements during December.

Barclays and the Bureau for Economic Research said this was more than five index points below the average level in 2015.

“Unfortunately, purchasing managers do not foresee an improvement over the near term as the index measuring expected business conditions in six months time declined to 39.4 points – the lowest level in almost seven years.”

Business activity is now at its lowest since 2009, at 37.5 points.

Statistics SA has said the manufacturing sector continues to occupy a significant share of the economy despite its relative importance declining from 19 percent in 1993 to about 17 percent in 2012 in real terms.

Bart Stemmet, an analyst at NKC African Economics, said while electricity supply issues were to blame for the weak performance during the first half of 2015, weak demand, both local and from abroad, was to blame for the manufacturing sector not being able to gain traction in recent months.

Kamilla Kaplan, an economist at Investec, said domestic economic conditions were adverse as consumption expenditure growth slowed and market conditions in the allied agriculture, commodity and energy industries remained suppressed. She said global demand was pervasively weak, which limited any benefits of rand weakness for export-orientated manufacturers.

“The World Trade Organisation, International Monetary Fund and World Bank have all suggested that subdued world trade growth has become endemic and do not forecast much of a lift in growth in 2016,” she said.

Kaplan said the PMI signalled manufacturing output was at risk of contracting in the first quarter, exacerbating the existing weak conditions in the mining and energy sectors.

“On the consumption side of the economy, spending growth is expected to be further dampened by tighter fiscal and monetary policies. Disappointing economic growth could trigger a sovereign credit rating downgrade, given the implications for achieving fiscal targets.”

The rand extended losses against the dollar as the PMI fell, further signs of economic weakness in China emerged, and a dip in oil prices kept investors on guard.

By 5pm the rand was at

R16.0668 to the dollar.