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December Absa PMI falls

While disappointing, indications are of improved expectations for the coming year, says Absa economist Miyelani Maluleke.

WARREN THOMPSON:  Joining me by phone now to discuss the ABSA Purchasing Managers’ Index is economist Miyelani Maluleke. Good to have you with us, Miyelani.

MIYELANI MALULEKE:  Thank you very much for having me and good afternoon to your listeners.

WARREN THOMPSON:  The data that came out today said that according to the PMI survey for December, the contraction in manufacturing sector activity deepened, with the PMI gauge falling to 44.9 from 48.6 in November. What does that mean, Miyelani?

MIYELANI MALULEKE:  It’s very disappointing because you will remember, Warren, that the manufacturing sector was actually a very strong contributor to GDP growth in the second quarter and in the third quarter. What we’ve had so far is official manufacturing production surprising to the upside in October and November. So the weakening in the PMI as well as the magnitude of the decline kind of suggests manufacturing activity around year-end was actually quite weak, which kind of suggests we may see those production numbers for December also come down a little bit.

WARREN THOMPSON:  Just to get this right, this takes into account seasonal factors, so this could adjust. Obviously December is a very quiet time from a general economic activity point of view, bar perhaps consumer spending. How does this compare with past years in December?

MIYELANI MALULEKE:  Ja, absolutely, you are right. What you tend to see is that activity in the manufacturing sector as production kind of slows down a little bit typically around the end of the year. But we do account for that in this particular index. The index itself is seasonally adjusted so that what we do capture is the underlying trend of activity. So when we do see a decline, particularly a decline of this sort of magnitude, what you are basically seeing is that after adjusting for seasonal factors, there was a pronounced weakness in manufacturing integrity in December.

WARREN THOMPSON:  While very, as you say, disappointing, there are some grounds for hope. There seems to be much more optimism, probably in the wake of that ANC elective conference, around what’s going to happen in the future. Just give us your thoughts around what you’ve found from the survey in that regard.

MIYELANI MALULEKE:  While the data quite clearly show that activity was weak in December itself, what manufacturers are saying is that they are quite optimistic about our prospects in six months’ time, and there is an index in the PMI that measures expectation. It actually soared by almost 12 points to 61.9 – I think a clear indication that manufacturers are quite upbeat. It may well be that people are expecting a slightly more favourable political environment in the coming year, against the backdrop of what happened at Nasrec.

But also I just want to highlight that global manufacturing activity has actually continued to strengthen. I think that also provides decent support for local manufacturers as well. So the combination of these two factors may be behind this improvement in expectations over the coming year.

WARREN THOMPSON:  That looks very interesting and [is] I guess some deeply-needed positive news for the sector. Good chatting to you, Miyelani.

MIYELANI MALULEKE:  Thank you very much for having me.

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