SA factories catch up with peers

Johannesburg - South Africa's manufacturing sector growth no longer lags that of its global counterparts. While this is good news for the economy, there is some concern that the recovery might only be driven temporarily by China.

The recovery is evident in the December Kagiso purchasing managers' index (PMI) - a survey that provides insight into the health of an economy's manufacturing sector.

The PMI increased to 52.5 index points in December from 50.3 in November. In December, the global PMI reached 55 - the highest since April 2006.

"After an initial lag, the South African manufacturing rebound is now very close to being on par with the global trend," said André Coetzee, head of fixed income at Kagiso Securities.

In August 2009, the gap between the global and SA PMI reached a record high of 13.75 index points, he said. "The gap closed to only 2.5 points during December, illustrating that the domestic catch-up to improved global conditions is gathering steam."

But Coetzee warned he was worried about the manufacturing sector's prospects. "China is a really big factor at the moment; they have the biggest market for vehicle sales which is showing growth at the moment, and has become a dominant force in driving PMI. But we can't put all our hope on China - we need to see a full-scale global recovery first."

Nevertheless, headline PMI has risen for five months in a row from the "longest and most severe decline in the factory sector since the SA PMI was launched in 1999".

On a quarter-on-quarter basis, the PMI averaged 41 index points in the third quarter, while in the fourth quarter the average PMI rose strongly to 50.1 points.

"The gain bodes well for December's factory output data and in a broader sense also the 2009 fourth-quarter GDP report," said Coetzee.

- Fin24.com