The latest data from Absa’s Purchasing Managers’ Index (PMI), combined with a weaker rand, will increase input costs and add pressure to metal and engineering companies’ bottom lines.
This was the message from chief economist of the Steel and Engineering Industries Federation of Southern Africa (Seifsa), Michael Ade, yesterday (Wednesday).
Absa’s PMI declined by 3.8 points in July, with all sub-indices performing poorly, and Ade noted that this was the weakest it had been since the second half of 2009.
“The data point is largely driven by souring of sentiment, including low executive, business and consumer confidence. These feed into poor month-to month changes in demand and factory activity,” he said.
Seifsa economist Marique-Mari Kruger noted that last month’s PMI reading signalled a contraction in the manufacturing sector.
Ade added that this did not bode well for business within the industry, especially as the metals and engineering sector was currently at a crucial phase in wage negotiations.
A nationwide strike has been hanging over the sector since wage negotiations between the union and employers broke down.
“Manufacturers continue to face serious headwinds despite last month’s decision by the South African Reserve Bank to cut the repo rate by 25 basis points, which was an expansionary money policy move to reduce costs and stimulate demand,” Ade concluded.
