Grahamstown - The strong rand, high interest rates and weak global economy pushed the Investec purchasing managers' index (PMI) to its worst-ever level in May, indicating that the manufacturing sector has already moved into recession.

The PMI, which is based on a monthly survey of purchasing managers done by the University of Stellenbosch's Bureau for Economic Research in conjunction with the Institute of Purchasing and Supply SA, went to 45.4 from 47.9 in April.

The PMI data back up first-quarter growth numbers released by Statistics SA last week, which showed economic growth had fallen to 1.5 percent - its lowest level since the final quarter of 1998.

Growth has slowed since last year, when it came in at 2.4 percent in the fourth quarter from 3 percent, 3.8 percent and 2.9 percent in the first three quarters.

Of the 11 sectors measured by the agency, nine slowed in the first quarter compared with the final quarter of last year. Agriculture, mining and manufacturing all shrank, with output falling 3.2 percent, 0.7 percent and 0.3 percent respectively.

Collectively, the data show there is little danger of demand-driven inflationary pressure, and the PMI is likely to add weight to already strong arguments that interest rates be cut when the Reserve Bank's monetary policy committee meets next week.

This will encourage consumer and industrial demand and help boost economic growth  
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André Roux, the head of fixed income at Investec Asset Management, said the PMI had moved "convincingly" below the crucial level of 50. Levels of less than 50 indicate manufacturing is contracting.

Since the PMI first started being compiled it has dipped below 50 on only three previous occasions.

Roux said more readings were needed, but it was "fair to conclude that the manufacturing sector is already in recession".

After the release of the gross domestic product data, independent economist Noelani King Conradie warned that "should the global environment not rebound in the latter half of this year, local interest rates not fall fast enough and the rand not weaken from current levels, the domestic economy could struggle to register growth above 2 percent ... [moving] further away from pulling itself out of its quagmire of high levels of unemployment and dire socioeconomic conditions".

Purchasing managers shared her pessimism, with their six months forward expectations deteriorating further in May.

The gross percentage of respondents expecting an improvement in business conditions declined to 36 percent from 40 percent the month before, while the gross percentage expecting a deterioration in six months' time increased to 17 percent from 16 percent before.