Confidence in South Africa’s private sector regarding the year ahead has declined for the fifth month running to the weakest level since May 2022, in spite of activity rebounding.
CONFIDENCE in South Africa’s private sector regarding the year ahead has declined for the fifth month running to the weakest level since May 2022, in spite of activity rebounding.
The S&P Global released the South Africa Purchasing Managers’ Index (PMI) on Friday.
The PMI returned to growth territory in February, printing at 50.5 points after falling to a 13-month low of 48.7 points in January, signalling a slight pick-up in the health of the private sector economy.
The latest reading showed that the improvement came as output levels stabilised in February, thereby ending a prior five-month sequence of contraction.
S&P said some panellists saw an increase in activity linked to new contracts and higher sales, but others saw a decline amid demand weakness and load shedding.
Upturns in the construction and services sectors were offset by a marked fall in wholesale and retail.
S&P Global Market Intelligence senior economist David Owen said the latest reading helped to allay fears of a renewed downturn in the private sector economy, after a rocky start to the year saw the headline index hit a 13-month low.
However, Owen said while output levels stabilised in February, they did so after contracting at a solid pace.
“Demand indicators again looked bleak, with new orders down for the third month running and business sentiment hitting the lowest level since May 2022,” Owen said.
“Moreover, cost pressures picked up to a seven-month high as a deterioration in the rand against the dollar added to import costs.
“Staff wages also rose at a faster pace as inflationary pressures continued to bite, prompting firms to reduce employment levels for the first time in a year.”
S&P’s findings about confidence levels are aligned with Absa’s which also released its PMI during the week.
Absa said sentiment about expected business conditions in the manufacturing industry had plummeted to its lowest in nearly three years dragged down by extensive load shedding which continues to undermine business conditions.
However, unlike the S&P’s, Absa’s seasonally adjusted PMI fell sharply below the neutral 50-point to 48.8 points in February, from a seven-month high of 53.0 points in January.
Meanwhile, S&P said new order volumes dropped for the third month in succession, although at the softest pace in this sequence, as firms often noted that load shedding and weak economic conditions had continued to harm sales.
S&P said that companies reduced their staffing levels for the first time in a year amid the weaker outlook, although the decrease was only mild overall.
Despite this, staff wages increased at the quickest pace for three months, as companies looked to mitigate steep inflationary pressures.
Efforts to avoid stock shortages also led companies to increase their purchasing activity for the first time since last September, despite continued reductions at some firms linked to weaker demand.
At the same time, firms faced an acceleration in purchase cost inflation for the first time in eight months.
According to panellists, the increase in purchasing costs was down to a number of factors, including a weakening in the exchange rate against the US dollar.
As a result, overall cost burdens picked up at the steepest pace since July 2022, resulting in a sharp and faster increase in average prices charged
On the positive side, firms benefited from a solid increase in new export orders, that was in fact the strongest seen since December 2011.
– BUSINESS REPORT
