Mariam Isa
2 October 2009
Johannesburg — Manufacturing activity made a spectacular recovery last month, suggesting the embattled sector may start growing again in the fourth quarter, in line with global trends.
The purchasing managers index (PMI), a reliable health gauge for factory output, leapt to 48 from 39,3 -- its highest since May last year.
This, the second-biggest rise in the 10-year history of the index, took it near the critical 50 level, the dividing line between expansion and contraction.
"I think we could be back in positive territory by next month," said Andre Coetzee, head of fixed income and currency futures at Kagiso Securities.
"Looking at the global picture, manufacturing looks like it has turned the corner at the moment."
Similar surveys in Asia yesterday showed that manufacturing activity surged across the region, which is now SA's main trade partner.
Activity in Europe contracted, albeit at a slower pace.
The Markit Eurozone PMI rose to 49,3 last month from 48,2 a month earlier.
In the US, manufacturing grew a bit more slowly than in August. SA's PMI has been below 50 since April last year, and official data show that the sector, the economy's second-biggest, has been shrinking since the third quarter of last year.
Manufacturing went into free- fall at the start of this year, contracting a record 22,1%, and dragging the economy into its first recession since 1992. It contracted a less alarming 10,9% in the second quarter.
Yesterday's PMI survey, which is sponsored by Kagiso Securities, shone a clear light at the end of the tunnel.
Business activity surged to 49,4 from 38,3 while new sales orders moved into growth territory, rising to 50,7 from 39,5.
The inventories index climbed to 47,6 from 37,0.
Citigroup economist Jean- Francois Mercier said: "The surge in the September PMI reinforces our expectation that the recession ended in SA during the third quarter, and that growth will pick up again somewhat in the fourth."
The South African Chamber of Commerce and Industry said in a review yesterday that the economy's "bleeding" had slowed, but it was imperative to prioritise business and investor confidence in new policy proposals.
In a global financial stability outlook released yesterday, the International Monetary Fund (IMF) predicted SA's economy would shrink 2,2% this year, which is broadly in line with consensus.
Most analysts believe economic output will be broadly flat in the third quarter of this year, and notch up some growth in the fourth quarter.
The IMF sees the economy expanding 1,7% next year -- a bit below market forecasts for growth of 2%.
The expected business conditions component of SA's PMI leapt to 70,3 from 59,3, its highest in about 2½ years.
"With a lag of about five months, SA's PMI is mirroring the pattern seen in some of the world's major countries, which saw a clear rebound after initially hesitant gains," said Mercier.
Coetzee said the leap in the PMI was all the more remarkable for sustained strength in the rand, which helps to erode the competitiveness of exports. The unit slipped to its weakest level in nearly a month yesterday, at R7,68/, after news of a collapse in the proposed tie-up between MTN and India's Bharti, which would have led to large capital inflows.
The jobs component of the PMI rose to 42,7 from 37,5, suggesting that the pace of job-shedding in the sector was slowing.
Manufacturing lost 36000 jobs in the first quarter of this year and 17000 in the second quarter. The PMI measures sales orders and expectations among purchasers of supplies for factories.
The index hit a trough at 35,6 in April this year, and has risen since then every month except July.
A global PMI produced by JPMorgan with research and supply management organisations dipped to 53,0 last month from 53,1 in August.
This was the second month running that the index has been above the 50,0 mark, after breaking even in July after 13 months in contractionary territory.
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