Business Day (4/3/2008) — 03/04/2008
GRIM OUTLOOK FOR S.A. ECONOMY
Thabang Mokopanele
Fewer orders, input price inflation, cut-backs in production

MANUFACTURING activity slumped to a 4-1/2 year low last month, knocked by slowing consumer demand for cars and furniture and the power crisis, according to the latest Investec purchasing managers' index. With manufacturing the second biggest contributor to SA's economy (16%) after financial services, the slump points to softening growth in the first quarter. Expectations for business in the next six months hit a record low as output and new sales orders contracted during the month, and tight conditions were aggravated by the increase in input price inflation. 'With five out of nine of the components under the key 50 level, economic difficulties are indeed taking hold,' ETM analyst Karen Chow said yesterday. 'Rising inventories, falling new and backlog of sales orders, and a decline in business activity indicates that manufacturers are less confident of the outlook going forward and have cut back in production.'
 
Manufacturing takes the strain as electricity crisis bites
SA’s seasonally adjusted PMI, which measures manufacturing activity, fell to 46.4 in February from 52.1 in January. A reading above 50 points to an expansion, and one below points to a contraction. 'In all likelihood, the decline reflects not only the effect of a softening real economy, but also the effect of the electricity crisis on the sector,' Andre Roux, fixed income head at Investec Asset Management, said yesterday. 'The results indicate that the manufacturing sector is taking strain. Purchasing managers expect conditions to improve somewhat in the next few months. However, their expectations with respect to conditions in six months’ time were adjusted downward to the lowest level since 1999,' Roux said.
 
Jobs cut because of power rationing
Large manufacturers, together with the mines, have borne the brunt of power rationing which has had a negative effect on both output volumes and order books. Industry, business and households have been asked to cut consumption up to 10% until 2010 to stabilise supply in a step that will add to other constraints and may curb growth to just above 3% this year from 5% last year. Along with mining, the manufacturing sector is likely to be hit hard. Chow said that, given the pessimism surrounding Eskom’s power supply over the next few years, manufacturers would be reluctant to commit to contracts that might not be fulfilled due to power constraints. 'This is reflected in the decline in the employment component which fell below the key 50 mark for the first time since May 2006, as manufacturers were forced to cut jobs,' she said.