The latest data measuring private sector activity shows that SA’s economy was again held back by worsening supply conditions in April, amid increased disruption both within its borders and abroad.
The S&P Global IHS Markit SA purchasing Managers Index (PMI) released Thursday dropped to a four-month low of 50.3 in April from 51.4 in the previous month, pointing to a deterioration in business conditions.
The index tracks business trends across private-sector activity, including mining, manufacturing, services, construction and retail based on data collected from a representative panel of around 400 companies. It tracks variables such as new orders, output, employment, supplier delivery times, inventories and prices. A reading above 50 indicates expansion in business activity and below 50 indicates that it is generally declining.
The decline in the S&P Global IHS Markit PMI is in line with all major indices, which showed all round activity slumped the last three months following global supply constraints that were exacerbated by Covid-19 lockdown policies in China and the Russia-Ukraine war. The severe floods in KwaZulu-Natal and the severe rounds of load-shedding contributed to further sharp declines in overall activity.
On Tuesday, the Absa PMI showed a sharp fall in manufacturing activity, raising concerns about stagflation.
FNB economist Siphamandla Mkhwanazi said the deterioration indicates that survey respondents are concerned about stagflation, a situation in which the inflation rate is high, economic growth slows and unemployment remains steadily high, presenting a dilemma for economic policy as actions intended to lower inflation may worsen unemployment.
Last week, the SA Reserve Bank’s composite business cycle indicator showed that business activity fell in February. Nedbank senior analyst Jones Gondo told Business Day the print showed the balance of risks were weighing on expectations in the economy, “and that the bias is now tilting towards the downside in terms of domestic economic activity”.
Gondo said Nedbank expects a further deceleration in coming surveys because of structural bottlenecks to investment-led growth such as energy supply constraints and inefficient port and logistics infrastructure limit any upside potential in this cycle.
SA’s mining production also fell sharply, confounding forecasts. Output fell 6% in February from a year earlier, while economists surveyed expected a 0.1% growth.
David Owen, economist at S&P Global said SA businesses continued to face a myriad economic challenges in April. Owen said many firms were reportedly hit by load-shedding and floods in KwaZulu-Natal while rising fuel prices also led to a sharp rise in purchasing costs, as well as efforts to compensate staff facing higher living expenses.
Data shows that the output and new orders indices posted inside contraction territory in April, signalling a decline in both business activity and sales. Stocks of purchases were also reduced, but rising employment and busier supply chains meant that the PMI remained above the 50 neutral mark.
Owen said new orders data showed that clients were increasingly struggling with higher prices and rising living costs in April, which contributed to a decline in sales for the first time in three months.
He said higher fuel prices were a particular concern for both businesses and households, while a depreciation in the rand added to total import costs.
“With businesses facing the prospect of further load-shedding, sharp cost inflation and supply-side problems, output growth is expected to be subdued in the near term,” Owen said.
zwanet@businesslive.co.za
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