PMIs will indicate likelihood of a double-dip recession

14 October 2011

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14 October 2011 | Angeline Albert

The next two months of purchasing managers' indexes (PMIs) will be “crucial” in indicating whether countries are likely to move towards or away from a double-dip recession, the managing director of CIPS Southern Africa believes.

Having stressed the importance of PMIs in a speech to purchasers attending Smart Procurement World (11-13 October) in South Africa, André Coetzee told SM: The Kagiso PMI precedes the actual manufacturing production numbers in South Africa by six weeks. It’s the first indication of any change in the sector and a recession starts and ends in the manufacturing sector. The PMIs in the West are hovering around 50. If they start to recover and move significantly above this figure the chance of a double-dip recession for them and South Africa reduces.     

He said he is keeping a watchful eye on the PMIs of the UK, China, US and the Eurozone. 

The seasonally adjusted Kagiso PMI for the month of September gained four points to move back above the key 50-index point mark to reach 50.7. This came as the Eurozone PMI declined further below 50 to 48 in September.

US and Chinese manufacturing growth is also slowing, which raises Coetzee’s concern about the sustainability of the SA PMI recovery.

South Africa’s domestic factory sector was hit hard by strikes during July and August and any recovery in September is seen as a move back to a more normal situation in the absence of industrial action. The considerable weakening of the South African rand also made the country’s manufacturers more competitive and led to a rise in business confidence.

As reported on CIPS CEO David Noble said interest in PMIs was one indication of just how procurement was influencing mainstream debate. He said the recent UK manufacturing PMI drove a “huge and significant shift” in the FX exchange. A huge jump in the pound when compared to the dollar occurred because the manufacturing PMI was much better than expected. “In tracking the accuracy of PMIs to the GDP data there’s a very, very close collaboration.”

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