South Africa’s Q3 whole economy PMI hints at possible recession

By bne IntelliNews October 5, 2015

South Africa’s seasonally-adjusted whole economy Purchasing Managers’ Index (PMI), produced by Standard Bank South Africa, dipped to a 14-month low of 47.9 in September from 49.3 in August, Markit, which compiles the PMI, said in a statement.

The index thus remained below the 50 mark, which signals a deterioration in companies’ operating conditions, for the fourth month in a row. Moreover, at 48.7, the average PMI reading for the third quarter was the worst on record, implying that the economy might be on the brink of recession after contracting 1.3% q/q in Q2. This is in contrast to the central bank’s, as well as rating agencies’ predictions that South Africa’s economy will remain lacklustre, but will escape a recession (determined as two consecutive quarters of GDP contraction).

South African private sector firms reported a continued contraction of output and new orders in September, with the rates of decline accelerating since August, Markit said. Consequently, firms reduced their buying activity and lowered their workforce numbers, with the employment index falling below 50 for the first time since May. Output price inflation reached a four-month high and input costs continued to rise at a robust rate.

“We expect employment in the manufacturing, mining and construction sectors, to be particularly impacted by lower commodity prices and slower domestic and global economic growth,” Standard Bank economist Kuvasha Naidoo said in the statement. He added that the PMI leading indicator (the ratio of new orders to inventory) fell further last month, staying below 1 for the fourth month in a row and thus suggesting that output will likely remain subdued over the short term.

The Standard Bank South Africa PMI covers South Africa’s manufacturing, mining, services, construction and retail sectors.

Last week, data released by the Bureau for Economic Research (BER) showed that South Africa’s seasonally adjusted PMI for the manufacturing industry, sponsored by Barclays, ticked up to 49 in September from 48.9 August, signalling continuing slack and probably further contraction of the sector in Q3.

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