Intensification of load shedding depresses December PMI

The Kagiso Purchasing Managers Index (PMI) for December, which gauges sentiment towards the manufacturing sector, posted a sharp fall, to 50.2 on a seasonally adjusted basis, after having risen sharply in November, to 53.3.

Without doubt, the major contributor towards the slump in the PMI was the disruption caused by the onset of more concerted electricity load shedding in December, together with the prospect that such load shedding might even intensify in the New Year. As a result, the fall in the PMI tended to be out of sync with the mixed performance of PMIs in other important regions to which South Africa's manufacturing sector exports, even if such PMIs were still relatively lacklustre.

Amazingly, however, the "expected business conditions" component of the PMI, which looks forward to what might occur in the manufacturing sector in six months’ time, shot up to its best level since February 2012. One can only think that the steep decline in oil prices has generated substantial optimism about an upswing in the global economy and associated improvement in domestic economic conditions.

Unsurprisingly, the prices component of the PMI declined to its lowest level since July 2012 on the back of the decline in oil prices. Without doubt, the softness of the PMI adds to the low probability of any increase in interest rates domestically for some time to come, possibly even for the whole of 2015. Much will depend on the extent to which global and domestic economic conditions respond to the increased disposable income brought about by lower oil prices as against the decline in prices of minerals which South Africa exports.

Source: Extracts from Econometrix 14/1/2015

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