PMI back on recovery path

Johannesburg - South African manufacturing activity has recovered from a potentially dangerous slump and is once again expanding, according to August's purchasing managers' index (PMI).

The PMI - compiled monthly by Kagiso Securities - clocked in at 50.3 index points during the month. Any reading above 50 points indicates that the sector is expanding.

The PMI had registered readings of below 50 in both June and July, which raised some panic that South Africa's manufacturing sector had been derailed from its rocky recovery path and was headed towards a second recession.

"After two months we were starting to get worried, but today's figure are encouraging," said Theo Vorster of Kagiso Securities.

The concerns were amplified by the fact that China's PMI had also reported slowing activity in the manufacturing sector.

China is growing in importance as a trading partner for South Africa, so a slowdown in the Far Eastern economy would be bad news for the fragile local recovery.

'Rate cut is on'
 
However, PMI data released on Wednesday morning by the China Federation of Logistics and Purchasing was recorded at 51.7 points in August, which has eased fears somewhat.

"China and South Africa's manufacturing production are linked in the longer term," said Vorster.

He added that a sizeable jump was recorded in the forward-looking component of the South African PMI, expected business conditions.

The expected business conditions index rose by almost 2 index points to 59.6.

"This is promising for the sector going forward and we hope we can sustain the momentum," said Vorster.

Meanwhile, Voster said that Kagiso Securities maintains the view that the Reserve Bank's Monetary Policy Committee will cut interest rates to boost the manufacturing sector when it meets later this month.

"The increase in the PMI is not strong enough to deter from a rate cut," he said.

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