The S&P Global South Africa Purchasing Managers Index (PMI) remained in the contractionary territory, edging down to 48.2 points in July from 48.7 in June.
BUSINESSES in South Africa have remained optimistic about conditions over the next 12 months in spite of the sustained downturn in business conditions as private sector activity fell for the fifth consecutive month in July.
The S&P Global South Africa Purchasing Managers Index (PMI) remained in the contractionary territory, edging down to 48.2 points in July from 48.7 in June.
The reading pointed to a moderate decline in operating conditions, and the second-strongest in two years after May’s recent nadir as elevated prices, weak confidence and capacity constraints weighed on overall demand.
This print was also in line with Absa’s PMI released earlier this week which fell by 0.3 index points to 47.3 in July from 47.6 in June, as business activity slowed due to the torching of multiple trucks on the N3 transport corridor during the month.
S&P said new business’ decline was the quickest seen since the start of the year, as struggling household finances and weak business confidence weighed on overall demand.
Firms reported a lack of orders due to ongoing load shedding and output subsequently declined at a steep rate amid further drop in sales.
Persistent load shedding continues to weigh heavily on both consumer and business confidence and has severely impeded economic activity in the country, with marginal growth predicted for this year.
As a result, S&P said, firms responded by reducing their headcounts for the first time in three months and the quickest since February 2022, while keeping stock levels down.
S&P Global Market Intelligence senior economist David Owen said South African businesses continued to suffer from a slump in order book volumes in July, marking the ninth contraction in the past 11 months and the fastest since January.
Owen said at 48.2 points, the index was also at its second-lowest in exactly two years, suggesting that the private sector remained stuck in a downturn that may prove difficult to escape.
“Adding to this argument was another marked rise in business input costs. In fact, the rate of inflation accelerated from June due to currency weakness, salary pressures and reports of increased fuel prices,” Owen said.
“However, a recent pick-up in the exchange rate against the US dollar helped to ease cost burdens at some companies.
“Nevertheless, a further sharp increase in selling prices signals that customers could face additional pain at a time of already weakened finances, adding even greater gloom to the demand outlook.”
At the same time, S&P said firms continued to signal elevated inflationary pressures at the start of the third quarter, as heightened import costs, rising fuel prices and pay pressures weighed on expenses.
As a result, businesses raised their selling prices to a sharp degree in July, in an effort to pass on costs to their customers while the rate of charge inflation quickened slightly for the first time in four months.
“Despite the sustained downturn in business conditions, firms held a stronger view of activity over the next 12 months in July, with the degree of confidence reaching its highest since October 2022,” S&P said.
“In fact, just over half of all survey respondents expect output to grow, although this was often based on hopes that the economy will start to recover.”
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