Trade deficit outlook 'not inspiring'

Factories will do little to close South Africa's gaping trade deficit.

The manufacturing sector is contracting, according to the Kagiso Purchasing Managers Index released yesterday.

Last month, the index dived four points to a three-year low of 46.2.

Standard Bank economist Nomvuyo Guma said in response that the outlook for the manufacturing sector is "not inspiring".

"While the decline in the PMI was anticipated, the extent of the decline was greater than expected," she said yesterday.

The sector is bleeding jobs and profits.

StatsSA's quarterly employment survey showed last month that 9000 manufacturing jobs have been lost in the last quarter.

The employment index of the PMI also dipped sharply below 50 points, showing that employment prospects are dire.

"The PMI data [for the third quarter] indicates a recovery in factory sector employment is unlikely over the short term," Kagiso Tiso Holdings said in a statement.

Trade with South Africa's traditional markets for manufactured goods has been under pressure, because of slow growth in countries struggling with high debt and severe austerity measures.

"Weaker demand from South Africa's key trading partner, Europe, coupled with industrial action in the mining sector in September weighed heavily on the sentiment index," said Guma.

Trade statistics released by the South African Revenue Service on Friday show that it is not only the manufacturing sector that is under pressure. Mineral exports were 17% lower than a year ago.

Exports in general declined by 3.3%, pushing the trade deficit for August to R12.2-billion, compared to R6.7-billion in July. The trade deficit for the year stands at R69.9-billion, much higher than the R8.7-billion deficit a year ago.

The higher cost of importing fuel is taking a toll on the trade numbers. But it also has an influence on the input costs of manufacturers.

The PMI's price component climbed to its highest level since January this year, reflecting a 69c a litre increase on diesel early last month.

Fuel prices are set to increase again tomorrow, bringing both petrol and diesel to new highs for local manufacturers. But there is some optimism on the factory floor. Most purchasing managers expect conditions to improve.

"Following three consecutive months where purchasing managers downgraded their outlook for future business activity, the expected business conditions index gained 2.6 points to 55.5 during September," said Kagiso Tiso.