SA’s economy lagging behind the globe
While South Africa’s economy contracted in the first quarter, so far second quarter data have hardly been encouraging. According to the National Association of Automobile Manufacturers of South Africa (NAAMSA), sales of new vehicles fell by 9.2% year-on-year in May. There was a sharp decline in exports due to the discontinuation of a specific car model which could lead to a further blow to the trade deficit, but NAAMSA expects vehicle exports to improve in the second half of the year.
Sales of new passenger cars fell 11.3% year-on-year. Coupled with falling furniture sales, and household credit growth below 5%, it is an indication that consumers are slowing purchases of durable goods, which is a key cyclical indicator.
Manufacturing still lags compared to the rest of the world
The Kagiso manufacturing purchasing managers’ index (PMI) fell to 44.3 index points in May from 47.4 in April. Two consecutive months below 50 index points suggests the second quarter manufacturing output is also set to disappoint (manufacturing contracted 4.4% in the first quarter).
The business activity sub-index which declined to 42.5 in May from 48.5 in April is a key detractor of the PMI. Other sub-indices that also contributed to the weak number are new sales orders, backlog of sales orders, purchasing commitments and employment. The ratio of new sales orders to inventories remained below 1, indicating that firms have sufficient stock to meet current demand, and would not need to ramp up production.
Two positives are that business expectations for the next six months rose, based on the expectation that exports growth would pick up, while the prices sub-index fell sharply, implying that the bulk of cost pressures from the weak rand have already been accounted for.
The local PMI was off par with its global counterparts. The US ISM manufacturing index increased to 55.4 points in May from 54.9 in April, the highest level this year. The Eurozone’s manufacturing PMI declined to 52.2 in May from 53.4 in April, but remained above 50 index points. While the UK’s manufacturing PMI moderated in May, but remains high at 57 index points.
China’s official manufacturing PMI, which focuses on larger firms, rose to 50.8 in May, from 50.4 in April. The HSBC China PMI, which focuses on smaller firms, was below 50 points in May, but at a five-month high. Japan’s manufacturing PMI was also below 50 in May, but increased from 49.4 in April, as the consumption tax hike in April limits local demand.
Overall, the global economic outlook remains positive, supported by low interest rates and nearly absent inflation which is an upside for South Africa as long as we can find solutions for our worst challenges.
