Johannesburg - The good news is that South Africa might be reining in inflation; the bad news is that the economy will continue to shrink.
That's the import of the Kagiso Purchasing Managers' Index (PMI) which confirmed on Monday the country was suffering weak economic growth in the current quarter.
The Kagiso PMI for July stayed at "extremely low levels", declining from 37.9 during June to 37.3 index points.
"It's still below 50, and it shows input prices are dropping - which bodes well for inflation," André Coetzee, Kagiso's head of fixed income and currency futures, told Fin24.com.
"However, this figure is bad for GDP [gross domestic product], as manufacturing makes up about 15% of it.
"This means the economy might continue to contract, but just at a slower pace." There could be more recessionary pressure in the third quarter of 2009, he said.
ETM economist George Glynos said the index revealed that while the PMI wasn't good news, there were "some pockets of less bad news".
"Purchasing commitments are less negative and the 'expected business conditions' index is above 50, which is an improvement," he said. The expected business conditions are a sub-index of the PMI which also gauges employment and prices.
"Price (the sub-index) has also decreased which is good news from an inflation perspective, and the employment sub-index is showing that manufacturers are laying off less workers," said Glynos.
The PMI's price index fell from 51.7 during June to 48.7 in July, and its employment index rose from 36.9 to 40.8.
"It's the first sign of things bottoming out and turning around," said Glynos.
"I was expecting another improvement, but certainly not a decline," said Citigroup's chief economist Jean Mercier. "But at least things seem to have stabilised." From April to June, the Kagiso PMI had improved from 35.6 to 37.9 points.
In the survey, Kagiso said: "The persistent weak readings... are disappointing, especially since the global PMI has already reached levels above 45 index points."
Mercier said the PMI indicated South Africa was not only lagging the trough of global PMIs, but that the country was also lagging the upturn.
He agreed there are global signs that the worst has passed: "But in South Africa it's not happening yet."
Third-quarter GDP is still expected to be a weaker figure, he said, but it's still "far too early to tell" whether the recession would continue because there are no real economic data to support that statement.
- Fin24.com