The latest Purchasing Managers Index (PMI) shows the manufacturing sector is on its way to recovery and has erased losses incurred in March.
Absa’s PMI rose by 4 points to reach 50. 9 index points in April. This is more or less in line with the levels recorded in February and above the average recorded during the first 3 months of the year.
The improvement in the headline PMI was driven by increases in four of the five key components. And the biggest driver of the increase in PMI was the new sales orders index which is in positive terrain and is above the neutral 50 point mark.
This was driven mainly by an increase in business and consumer confidence.
Economist at Absa, Miyelani Maluleke says ” Any reading above 50 means that the sector is expanding and certainly it’s something that we hope can be sustained.”
But the manufacturing sector has been dealt a heavy blow with US refusing to grant South Africa an exemption on steel import tariffs.
Maluleke says “As we have learned this morning the U.S. has rejected South Africa’s exemption for tariffs. It will have an impact on the sector but we are confident that the overall performance will help.”
Economists are optimistic that the current PMI will be sustained in months to come and they expect business activity to lead to an increase in new sales orders.
They also expect improved performance of the manufacturing sector to contribute meaningfully to South Africa’s Gross domestic product.
Econometrix’s Laura Campbell looks at possible reasons for the improvement. “PMI returned to the level above 50 in April, this signal return to expansion conditions and positive effect within the sector. Ongoing positive steps taken by President Cyril Ramaphosa to address state capture and corruption are likely to have had a positive effect on sentiment within a sector in a month.”
The PMI is an indicator of the economic health of the manufacturing sector.