Local PMI encouraging

The Purchasing Managers' Index for July shows a reasonably strong start to the third quarter for the South African manufacturing sector.

Cape Town - The Purchasing Managers' Index (PMI) for July shows a reasonably strong start to the third quarter for the South African manufacturing sector.

This comes after a robust performance in the second quarter, Barclays said on Monday.

Despite falling by 1.2 index points to 52.5 in July, the Barclays PMI remained in line with recent readings for the Eurozone, a key export market for locally produced goods.

Barclays added initial data suggested that the Eurozone economy had been relatively resilient after the UK's Brexit vote, which was encouraging.

The decline in the headline PMI was mainly driven by a 4.8-point drop in the business activity index to 49.5. But, Barclays said, the PMI leading indicator rose back above 1 in July which suggests that output growth may pick up again.

In fact, it added, the new sales orders index signaled that the recent improvement in demand was sustained in July with a slight increase to 54.4 index points.

Read also: PMI figures signal upbeat factory sector

“Demand seems to be supported by improved export performance, with some respondents still noting significant weakness in the domestic economy,” Barclays said.

Other positive news is that the price index fell by 9.3 index points to reach 72.1 points, the lowest level since April 2015. The decline was likely driven by a stronger rand and the lower international oil price.

Barclays said the combination of these factors meant that the fuel price would decline significantly, providing relief for manufacturers and consumers. Also, with export demand holding up and upward pressure on costs lessening, purchasing managers were more optimistic.

The index measuring expected business conditions in six months' time rose to 55.4 in July, up from 52.9 in June. Barclays said this meant that barring unexpected disruptions, the sector would continue its recovery during the second half of 2016.

AFRICAN NEWS AGENCY